Can Helping the Sick Hurt the Able? Incentives, Information and Disruption in a Welfare Reform

Disability rolls have escalated in developed nations over the last 40 years. The UK stands out because the numbers on these benefits stopped rising when a welfare reform ("Jobcentre Plus") was introduced that integrated employment services and benefits for all categories of welfare recipients. The policy sharpened bureaucratic incentives to help move disability benefit recipients into jobs relative to unemployment insurance recipients. We exploit the staggered roll-out of the policy across geographical areas to identify treatment effects. In the long-run, the policy raised exits from disability benefits by 11% and did not significantly change unemployment outflows. This is consistent with a model in which reorganisation helps both groups, but bureaucrats shifted job-brokering efforts towards those on disability benefits and away from the unemployed. Interestingly, in the short-run the policy had a negative impact on exits from unemployment and no effect on exits from disability claims, suggesting important disruption effects. We estimate that it takes about six years for the estimated benefits of the reform to exceed its costs, which may be why welfare reforms are hard to introduce with myopic policy-makers. Our estimates imply that the response of disability outflows to Jobcentre Plus explain about 30% of the decline in the disability rolls between 2003 and 2008.