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Earnings Responses to Disability Benefit Cuts

Author

Listed:
  • Garcia Mandico, Silvia

    () (Erasmus University Rotterdam)

  • Garcia-Gomez, Pilar

    () (Erasmus University Rotterdam)

  • Gielen, Anne C.

    () (Erasmus University Rotterdam)

  • O'Donnell, Owen

    () (Erasmus University Rotterdam)

Abstract

Using Dutch administrative data, we assess the work and earnings capacity of disability insurance (DI) recipients by estimating employment and earnings responses to benefit cuts. Reassessment of DI entitlement under more stringent criteria removed 14.4 percent of recipients from the program and reduced benefits by 20 percent, on average. In response, employment increased by 6.7 points and earnings rose by 18 percent. Recipients were able to increase earnings by €0.64 for each €1 of DI income lost. Female and younger recipients, as well as those with more subjectively defined disabilities, were able to increase earnings most. The earnings response declined as claim duration lengthened, suggesting that earnings capacity deteriorates while on DI. The deterioration was steepest for male, younger and fully disabled recipients. Working while claiming partial disability benefits appears to slow the deterioration of earnings capacity.

Suggested Citation

  • Garcia Mandico, Silvia & Garcia-Gomez, Pilar & Gielen, Anne C. & O'Donnell, Owen, 2018. "Earnings Responses to Disability Benefit Cuts," IZA Discussion Papers 11410, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11410
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    References listed on IDEAS

    as
    1. David Autor & Andreas Ravndal Kostøl & Magne Mogstad & Bradley Setzler, 2017. "Disability benefits, consumption insurance, and household labor supply," Working Paper 2017/16, Norges Bank.
    2. Chen, Susan & van der Klaauw, Wilbert, 2008. "The work disincentive effects of the disability insurance program in the 1990s," Journal of Econometrics, Elsevier, vol. 142(2), pages 757-784, February.
    3. Alexander Gelber & Timothy J. Moore & Alexander Strand, 2017. "The Effect of Disability Insurance Payments on Beneficiaries' Earnings," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 229-261, August.
    4. repec:spr:portec:v:1:y:2002:i:2:d:10.1007_s10258-002-0010-3 is not listed on IDEAS
    5. Richard Burkhauser & Mary Daly & Duncan McVicar & Roger Wilkins, 2014. "Disability benefit growth and disability reform in the US: lessons from other OECD nations," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-30, December.
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    7. Moore, Timothy J., 2015. "The employment effects of terminating disability benefits," Journal of Public Economics, Elsevier, vol. 124(C), pages 30-43.
    8. Karlström, Anders & Palme, Mårten & Svensson, Ingemar, 2008. "The employment effect of stricter rules for eligibility for DI: Evidence from a natural experiment in Sweden," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2071-2082, October.
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    11. Lex Borghans & Anne C. Gielen & Erzo F. P. Luttmer, 2014. "Social Support Substitution and the Earnings Rebound: Evidence from a Regression Discontinuity in Disability Insurance Reform," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 34-70, November.
    12. David H. Autor, 2015. "The unsustainable rise of the disability rolls in the United States: causes, consequences and policy options," Chapters,in: Social Policies in an Age of Austerity, chapter 5, pages 107-136 Edward Elgar Publishing.
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    More about this item

    Keywords

    disability insurance; health; employment; earnings;

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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