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Health, disability insurance and labour force participation

  • Brian Bell
  • James Smith

Over half a million men of working age left the labour market over the course of the 1990s. In this paper this remarkable decline is explored, and the roles played by the interaction of skills, long-term sickness and the disability benefit system are highlighted. The analysis shows that the decline in participation was almost exclusively among unskilled males and that this same group reported increasing long-term illness. The generosity of the disability insurance system relative to that of the unemployment insurance appears to have encouraged such workers to exit the labour market. Strong evidence is presented of sizable labour supply responses to disability insurance benefits, which would support that hypothesis. But it seems unlikely that this 1990s' experience will be repeated as disability benefits are now much less generous than they were at that time.

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Paper provided by Bank of England in its series Bank of England working papers with number 218.

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Date of creation: May 2004
Date of revision:
Handle: RePEc:boe:boeewp:218
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  1. Bound, John & Waidmann, Timothy, 1992. "Disability Transfers, Self-Reported Health, and the Labor Force Attachment of Older Men: Evidence from the Historical Record," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1393-419, November.
  2. Richard Blundell & Paul Johnson, 1997. "Pensions and Retirement in the UK," NBER Working Papers 6154, National Bureau of Economic Research, Inc.
  3. Bound, John & Burkhauser, Richard V., 1999. "Economic analysis of transfer programs targeted on people with disabilities," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 51, pages 3417-3528 Elsevier.
  4. Jonathan Gruber, 1996. "Disability Insurance Benefits and Labor Supply," NBER Working Papers 5866, National Bureau of Economic Research, Inc.
  5. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  6. Bound, John, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," American Economic Review, American Economic Association, vol. 79(3), pages 482-503, June.
  7. Brian Bell & James Smith, 2002. "On gross worker flows in the United Kingdom: evidence from the Labour Force Survey," Bank of England working papers 160, Bank of England.
  8. Darius Lakdawalla & Dana Goldman & Jay Bhattacharya, 2001. "Are the Young Becoming More Disabled?," NBER Working Papers 8247, National Bureau of Economic Research, Inc.
  9. Nickell, Stephen & Bell, Brian, 1996. "Changes in the Distribution of Wages and Unemployment in OECD Countries," American Economic Review, American Economic Association, vol. 86(2), pages 302-08, May.
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