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Disability Pensions and Labor Supply

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  • Barbara Hanel

Abstract

I investigate the incentive effects of disability pensions on the labor supply decision of the elderly in Germany. In the year 2001, a reform decreased the level of benefits and tightened the criteria of eligibility. The purpose of this paper is twofold: First, I estimate transition rates into disability retirement, both prior to and after the reform in order to evaluate the effect of the reform on retirement behavior. Second, I use the exogenous variation in (a) expected benefit levels and (b) expected benefit accruals that is caused by the reform, in order to obtain reliable estimates of individuals’ responses in retirement behavior to financial incentives. While health status and expected wages turn out to be important determinants of the decision to enter disability retirement, benefits have only a small effect.

Suggested Citation

  • Barbara Hanel, 2010. "Disability Pensions and Labor Supply," Working Papers 086, Bavarian Graduate Program in Economics (BGPE).
  • Handle: RePEc:bav:wpaper:086_hanel
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    References listed on IDEAS

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    1. Parsons, Donald O, 1980. "Racial Trends in Male Labor Force Participation," American Economic Review, American Economic Association, vol. 70(5), pages 911-920, December.
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    Cited by:

    1. Robert E. Hall, 2014. "Quantifying the Lasting Harm to the U.S. Economy from the Financial Crisis," NBER Chapters,in: NBER Macroeconomics Annual 2014, Volume 29, pages 71-128 National Bureau of Economic Research, Inc.
    2. Sahlgren, Gabriel H., 2012. "Work ‘til You Drop: Short- and Longer-Term Health Effects of Retirement in Europe," Working Paper Series 928, Research Institute of Industrial Economics.

    More about this item

    Keywords

    disability pensions; labor force exit; Germany;

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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