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Can helping the sick hurt the able? Incentives, information and disruption in a disability-related welfare reform

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  • Bagaria, Nitika
  • Petrongolo, Barbara
  • Van Reenen, John

Abstract

Disability rolls have escalated in developed nations over the last 40 years. The UK, however, stands out because the numbers on these benefits stopped rising when a welfare reform was introduced that integrated disability benefits with unemployment insurance (UI). This policy reform improved job information and sharpened bureaucratic incentives to find jobs for the disabled (relative to those on UI). We exploit the fact that the policy was rolled-out quasi-randomly across geographical areas. In the long-run the policy improved the outflows from disability benefits by 6% and had an (insignificant) 1% increase in unemployment outflows. This is consistent with a model where information helps both groups, but bureaucrats were given incentives to shift effort towards helping the disabled find jobs and away from helping the unemployed. Interestingly, in the short-run the policy had a negative impact for both groups, suggesting important disruption effects. We estimate that it takes about six years for the estimated benefits of the reform to exceed its costs, which is beyond the time horizon of most policy-makers.

Suggested Citation

  • Bagaria, Nitika & Petrongolo, Barbara & Van Reenen, John, 2015. "Can helping the sick hurt the able? Incentives, information and disruption in a disability-related welfare reform," CEPR Discussion Papers 10643, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10643
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    More about this item

    Keywords

    Incentives; performance standards; public sector; unemployment benefits;

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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