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Measuring the (Income) Effect of Disability Insurance Generosity on Labour Market Participation

  • Marie Olivier
  • Vall Castello Judit


We analyze the employment effect of a law that provides for a 36 percent increase in thegenerosity of disability insurance (DI) for claimants who are, as a result of their lack of skillsand of the labour market conditions they face, deemed unlikely to find a job. The selectionprocess for treatment is therefore conditional on having a low probability of employment, makingevaluation of its effect intrinsically difficult. We exploit the fact that the benefit increase isonly available to individuals aged 55 or older, estimating its impact using a regressiondiscontinuity approach. Our first results indicate a large drop in employment for disabledindividuals who receive the increase in the benefit. Testing for the linearity of covariatesaround the eligibility age threshold reveals that the age at which individuals start claiming DIis not continuous: the benefit increase appears to accelerate the entry rate of individuals aged55 or over. We obtain new estimates excluding this group of claimants, and find that the policydecreases the employment probability by 8 percent. We conclude that the observed DI generosityelasticity of 0.22 on labour market participation is mostly due to income effects since benefitreceipt is not work contingent in the system studied.

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Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 050.

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Date of creation: 2011
Date of revision:
Handle: RePEc:unm:umamet:2011050
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  1. Susan Chen & Wilbert van der Klaauw, 2006. "The Work Disincentive Effects of the Disability Insurance Program in the 1990s," Working Papers 06-05, Center for Economic Studies, U.S. Census Bureau.
  2. Till von Wachter & Jae Song & Joyce Manchester, 2011. "Trends in Employment and Earnings of Allowed and Rejected Applicants to the Social Security Disability Insurance Program," American Economic Review, American Economic Association, vol. 101(7), pages 3308-29, December.
  3. Joshua D. Angrist & Stacey H. Chen & Brigham R. Frandsen, 2009. "Did Vietnam Veterans Get Sicker in the 1990s? The Complicated Effects of Military Service on Self-Reported Health," NBER Working Papers 14781, National Bureau of Economic Research, Inc.
  4. Jonathan Gruber, 1996. "Disability Insurance Benefits and Labor Supply," NBER Working Papers 5866, National Bureau of Economic Research, Inc.
  5. Bell, David & Heitmueller, Axel, 2009. "The Disability Discrimination Act in the UK: Helping or hindering employment among the disabled?," Journal of Health Economics, Elsevier, vol. 28(2), pages 465-480, March.
  6. Vall Castello, Judit, 2012. "Promoting employment of disabled women in Spain; Evaluating a policy," Labour Economics, Elsevier, vol. 19(1), pages 82-91.
  7. Bound, John, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," American Economic Review, American Economic Association, vol. 79(3), pages 482-503, June.
  8. David H. Autor & Mark G. Duggan & David S. Lyle, 2011. "Battle Scars? The Puzzling Decline in Employment and Rise in Disability Receipt among Vietnam Era Veterans," American Economic Review, American Economic Association, vol. 101(3), pages 339-44, May.
  9. Guido Imbens & Thomas Lemieux, 2007. "Regression Discontinuity Designs: A Guide to Practice," NBER Working Papers 13039, National Bureau of Economic Research, Inc.
  10. David H. Autor & Mark G. Duggan, 2007. "Distinguishing Income from Substitution Effects in Disability Insurance," American Economic Review, American Economic Association, vol. 97(2), pages 119-124, May.
  11. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs in Economics," NBER Working Papers 14723, National Bureau of Economic Research, Inc.
  12. Richard Blundell & Monica Costa Dias, 2009. "Alternative Approaches to Evaluation in Empirical Microeconomics," Journal of Human Resources, University of Wisconsin Press, vol. 44(3).
  13. Guido Imbens & Karthik Kalyanaraman, 2009. "Optimal Bandwidth Choice for the Regression Discontinuity Estimator," NBER Working Papers 14726, National Bureau of Economic Research, Inc.
  14. Sergi Jiménez Martín & Judit Vall Castello, 2009. "Business Cycle Effects on Labour Force Transitions for Older People in Spain," Working Papers 2009-25, FEDEA.
  15. Boyle, Melissa A. & Lahey, Joanna N., 2010. "Health insurance and the labor supply decisions of older workers: Evidence from a U.S. Department of Veterans Affairs expansion," Journal of Public Economics, Elsevier, vol. 94(7-8), pages 467-478, August.
  16. Nicola Duell & Shruti Singh & Peter Tergeist, 2009. "Activation Policies in Norway," OECD Social, Employment and Migration Working Papers 78, OECD Publishing.
  17. Humer, Brigitte & Wuellrich, Jean-Philippe & Zweimüller, Josef, 2007. "Integrating Severely Disabled Individuals into the Labour Market: The Austrian Case," IZA Discussion Papers 2649, Institute for the Study of Labor (IZA).
  18. David Autor & Mark Duggan, 2006. "The Growth in the Social Security Disability Rolls: A Fiscal Crisis Unfolding," NBER Working Papers 12436, National Bureau of Economic Research, Inc.
  19. John Bound & Julie Berry Cullen & Austin Nichols & Lucie Schmidt, 2002. "The Welfare Implications of Increasing Disability Insurance Benefit Generosity," NBER Working Papers 9155, National Bureau of Economic Research, Inc.
  20. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
  21. Richard V. Burkhauser & Mary C. Daly & Philip R. de Jong, 2008. "Curing the Dutch Disease: Lessons for United States Disability Policy," Working Papers wp188, University of Michigan, Michigan Retirement Research Center.
  22. Staubli, Stefan, 2011. "The impact of stricter criteria for disability insurance on labor force participation," Journal of Public Economics, Elsevier, vol. 95(9), pages 1223-1235.
  23. van Ours, J.C., 2006. "Leaving "Hotel California" : How Incentives Affect Flows of Benefit Recipients in the Netherlands," Discussion Paper 2006-116, Tilburg University, Center for Economic Research.
  24. Hahn, Jinyong & Todd, Petra & Van der Klaauw, Wilbert, 2001. "Identification and Estimation of Treatment Effects with a Regression-Discontinuity Design," Econometrica, Econometric Society, vol. 69(1), pages 201-09, January.
  25. Lalive, Rafael & Wuellrich, Jean-Philippe & Zweimüller, Josef, 2009. "Do Financial Incentives for Firms Promote Employment of Disabled Workers? A Regression Discontinuity Approach," CEPR Discussion Papers 7373, C.E.P.R. Discussion Papers.
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