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Earnings Responses to Disability Benefit Cuts

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  • 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 of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp11410
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    Cited by:

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    3. Liebert, Helge, 2019. "Does external medical review reduce disability insurance inflow?," Journal of Health Economics, Elsevier, vol. 64(C), pages 108-128.

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    More about this item

    Keywords

    disability insurance; health; employment; earnings;
    All these keywords.

    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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