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How Financial Incentives Induce Disability Insurance Recipients to Return to Work

  • Andreas Ravndal Kostøl
  • Magne Mogstad

Disability Insurance (DI) programs have long been criticized by economists for apparent work disincentives. Some countries have recently modified their programs such that DI recipients are allowed to keep some of their benefits if they return to work, and other countries are considering similar return-to-work policies. However, there is little empirical evidence of the effectiveness of programs that incentivize the return to work by DI recipients. Using a local randomized experiment that arises from a sharp discontinuity in DI policy in Norway, we provide transparent and credible identification of how financial incentives induce DI recipients to return to work. We find that many DI recipients have considerable capacity to work that can be effectively induced by providing financial work incentives. We further show that providing work incentives to DI recipients may both increase their disposable income and reduce program costs. Our findings also suggest that targeted policies may be the most effective in encouraging DI recipients to return to work.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19016.

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Date of creation: May 2013
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Publication status: published as Andreas Ravndal Kostol & Magne Mogstad, 2014. "How Financial Incentives Induce Disability Insurance Recipients to Return to Work," American Economic Review, American Economic Association, vol. 104(2), pages 624-55, February.
Handle: RePEc:nbr:nberwo:19016
Note: AG HE LS
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