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Occupational hazards and social disability insurance

Author

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  • Michaud, Amanda M.

    () (Indiana University)

  • Wiczer, David

    () (Federal Reserve Bank of St. Louis)

Abstract

Using retrospective data, we introduce evidence that occupational exposure significantly affects disability risk. Incorporating this into a general equilibrium model, social disability insurance (SDI) affects welfare through (i) the classic, risk-sharing channel and (ii) a new channel of occupational reallocation. Both channels can increase welfare, but at the optimal SDI they are at odds. Welfare gains from additional risk-sharing are reduced by overly incentivizing workers to choose risky occupations. In a calibration, optimal SDI increases welfare by 2.6% relative to actuarially fair insurance, mostly due to risk sharing.

Suggested Citation

  • Michaud, Amanda M. & Wiczer, David, 2014. "Occupational hazards and social disability insurance," Working Papers 2014-24, Federal Reserve Bank of St. Louis, revised 03 Oct 2016.
  • Handle: RePEc:fip:fedlwp:2014-024
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    References listed on IDEAS

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    1. Jason M. Fletcher & Jody L. Sindelar & Shintaro Yamaguchi, 2011. "Cumulative effects of job characteristics on health," Health Economics, John Wiley & Sons, Ltd., vol. 20(5), pages 553-570, May.
    2. Bastian Ravesteijn & Hans van Kippersluis & Eddy van Doorslaer, 2013. "The Wear and Tear on Health: What Is the Role of Occupation?," SOEPpapers on Multidisciplinary Panel Data Research 618, DIW Berlin, The German Socio-Economic Panel (SOEP).
    3. Fortin, Nicole & Lemieux, Thomas & Firpo, Sergio, 2011. "Decomposition Methods in Economics," Handbook of Labor Economics, Elsevier.
    4. Kitao, Sagiri, 2014. "A life-cycle model of unemployment and disability insurance," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 1-18.
    5. John Rust & Christopher Phelan, 1997. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Econometrica, Econometric Society, vol. 65(4), pages 781-832, July.
    6. Morefield Brant & Ribar David C. & Ruhm Christopher J., 2012. "Occupational Status and Health Transitions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(3), pages 1-29, March.
    7. Mikhail Golosov & Aleh Tsyvinski, 2006. "Designing Optimal Disability Insurance: A Case for Asset Testing," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 257-279, April.
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    Cited by:

    1. David Wiczer & Amanda Michaud, 2017. "The Disability Option: Labor Market Dynamics with Macroeconomic and Health Risks," 2017 Meeting Papers 1459, Society for Economic Dynamics.
    2. Guvenen, Fatih & Kuruscu, Burhanettin & Tanaka, Satoshi & Wiczer, David, 2015. "Multidimensional Skill Mismatch," Working Papers 2015-22, Federal Reserve Bank of St. Louis.
    3. Satoshi Tanaka & David Wiczer & Burhanettin Kuruscu & Fatih Guvenen, 2015. "Occupational Switching and Self-Discovery in the Labor Market," 2015 Meeting Papers 1181, Society for Economic Dynamics.
    4. Serena Rhee & Soojin Kim, 2016. "Measuring the Effects of Employment Protection Policies for the Disabled: Theory and Evidence from the Americans with Disabilities Act," Working Papers 201621, University of Hawaii at Manoa, Department of Economics.

    More about this item

    Keywords

    Disability Insurance; Occupational Choice; Optimal Policy;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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