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Making Disability Work? The Effects of Financial Incentives on Partially Disabled Workers

Author

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  • Koning, Pierre

    (Vrije Universiteit Amsterdam)

  • van Sonsbeek, Jan-Maarten

    (Free University Amsterdam)

Abstract

This study provides insight in the responsiveness of disabled workers to financial incentives, using administrative individual data from the Netherlands from 2006 to 2013. We focus on workers receiving partial DI benefits and with substantial residual work capacities that can be exploited. After the first phase of benefit entitlement, workers that do not use their residual income capacity experience a large drop in benefit income. In effect, this implies a substantial increase in incentives to resume work. With entitlement periods in the first phase of DI benefits varying across individuals, we use a difference-in-difference approach to analyze the effects on the incidence of work, the wage earnings and full work resumption of disabled workers. Based on the effect estimate on work incidence, we infer a labor elasticity rate of 0.12. Elasticity estimates are highest among younger DI recipients, as well as individuals with mental impairments. The incentive change has only a limited impact on wage earnings of partially disabled workers and no significant impact on work resumption rates.

Suggested Citation

  • Koning, Pierre & van Sonsbeek, Jan-Maarten, 2016. "Making Disability Work? The Effects of Financial Incentives on Partially Disabled Workers," IZA Discussion Papers 9624, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp9624
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    Cited by:

    1. Pierre Koning & Paul Muller & Roger Prudon, 2020. "Do Disability Benefits Hinder Work Resumption After Recovery?," Tinbergen Institute Discussion Papers 20-084/V, Tinbergen Institute.
    2. Pierre Koning & Heike Vethaak, 2019. "Decomposing Employment Trends of Disabled Workers," Tinbergen Institute Discussion Papers 19-079/V, Tinbergen Institute.
    3. Andersson, Josefine, 2018. "Financial incentives to work for disability insurance recipients - Sweden’s special rules for continuous deduction," Working Paper Series 2018:7, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    4. Garcia-Mandicó, Sílvia & García-Gómez, Pilar & Gielen, Anne C. & O’Donnell, Owen, 2020. "Earnings responses to disability insurance stringency," Labour Economics, Elsevier, vol. 66(C).
    5. Hjellset Alne, Ragnar, 2018. "Economic incentives, disability insurance and labor supply," Working Papers in Economics 2/18, University of Bergen, Department of Economics, revised 14 Jun 2018.

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    More about this item

    Keywords

    disability insurance; work incentives;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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