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Disability, capacity for work and the business cycle: An international perspective

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Abstract

An important policy issue in recent years concerns the number of people claiming disability benefits for reasons of incapacity for work. We distinguish between ‘work disability’, which may have its roots in economic and social circumstances, and ‘health disability’ which arises from clear diagnosed medical conditions. Although there is a link between work and health disability, economic conditions, and in particular the ‘business cycle’ and variations in the risk of unemployment over time and across localities, may play an important part in explaining both the stock of disability benefit claimants and inflows to and outflow from that stock. We employ a variety of cross?country and country?specific household panel data sets, as well as administrative data, to test whether disability benefit claims rise when unemployment is higher, and also to investigate the impact of unemployment rates on flows on and off the benefit rolls. We find strong evidence that local variations in unemployment have an important explanatory role for disability benefit receipt, with higher total enrolments, lower outflows from rolls and, often, higher inflows into disability rolls in regions and periods of above?average unemployment. Although general subjective measures of selfreported disability and longstanding illness are also positively associated with unemployment rates, inclusion of self?reported health measures does not eliminate the statistical relationship between unemployment rates and disability benefit receipt; indeed including general measures of health often strengthens that underlying relationship. Intriguingly, we also find some evidence from the United Kingdom and the United States that the prevalence of self?reported ‘objective’ specific indicators of disability are often pro?cyclical – that is, the incidence of specific forms of disability are pro?cyclical whereas claims for disability benefits given specific health conditions are counter?cyclical. Overall, the analysis suggests that, for a range of countries and data sets, levels of claims for disability benefits are not simply related to changes in the incidence of health disability in the population and are strongly influenced by prevailing economic conditions. We discuss the policy implications of these various findings.

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  • Hugo Benítez Silva & Richard Disney & Sergi Jiménez-Martín, 2009. "Disability, capacity for work and the business cycle: An international perspective," Economics Working Papers 1171, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:1171
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    1. repec:wfo:wstudy:42691 is not listed on IDEAS
    2. Sergi Jiménez-Martín & Arnau Juanmarti Mestres & Judit Vall Castelló, 2016. "Great Recession and disability insurance in Spain," Economics Working Papers 1519, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2017.
    3. Rob Euwals & Annemiek van Vuren & Daniël van Vuuren, 2011. "The impact of reforms on labour market exit probabilities," CPB Discussion Paper 179, CPB Netherlands Bureau for Economic Policy Analysis.
    4. M. Agovino & A. Rapposelli, 2017. "Regional Performance Trends in Providing Employment for Persons with Disabilities: Evidence from Italy," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 130(2), pages 593-615, January.
    5. Jan-Maarten van Sonsbeek & Raymond H. J. M. Gradus, 2013. "Estimating the effects of recent disability reforms in the Netherlands," Oxford Economic Papers, Oxford University Press, vol. 65(4), pages 832-855, October.
    6. James Banks & Carl Emmerson & Gemma Tetlow, 2016. "Health Capacity to Work at Older Ages: Evidence from the United Kingdom," NBER Chapters,in: Social Security Programs and Retirement Around the World: The Capacity to Work at Older Ages, pages 329-357 National Bureau of Economic Research, Inc.
    7. Euwals, Rob & van Vuren, Annemiek & van Vuuren, Daniel, 2011. "The Decline of Early Retirement Pathways in the Netherlands: An Empirical Analysis for the Health Care Sector," IZA Discussion Papers 5810, Institute for the Study of Labor (IZA).
    8. Begoña Cueto & Miguel A. Malo, 2016. "Do Partial Disability Pensions Close the Earnings Gap?," Hacienda Pública Española, IEF, vol. 216(1), pages 103-126, March.
    9. repec:wiw:wiwwuw:wuwp271 is not listed on IDEAS
    10. Gijs Roelofs & Daniel Vuuren, 2017. "The Decentralization of Social Assistance and the Rise of Disability Insurance Enrolment," De Economist, Springer, vol. 165(1), pages 1-21, March.
    11. García-Gómez, Pilar, 2011. "Institutions, health shocks and labour market outcomes across Europe," Journal of Health Economics, Elsevier, vol. 30(1), pages 200-213, January.
    12. Baumberg Geiger, Ben & Böheim, René & Leoni, Thomas, 2018. "The Growing American Health Penalty: International Trends in the Employment of Older Workers with Poor Health," IZA Discussion Papers 11769, Institute for the Study of Labor (IZA).
    13. repec:wfo:wstudy:58532 is not listed on IDEAS
    14. James Banks & Richard Blundell & Antoine Bozio & Carl Emmerson, 2012. "Disability, Health and Retirement in the United Kingdom," NBER Chapters,in: Social Security Programs and Retirement around the World: Historical Trends in Mortality and Health, Employment, and Disability Insurance Participatio, pages 41-77 National Bureau of Economic Research, Inc.
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    17. Sergi Jiménez-Martín & Arnau Juanmarti Mestres & Judit Vall-Castello, 2016. "Great Recession and Disability in Spain," Working Papers 896, Barcelona Graduate School of Economics.
    18. repec:wfo:wstudy:58579 is not listed on IDEAS
    19. Purvi Sevak & Lucie Schmidt & Onur Altindag, 2012. "The Great Recession, Older Workers with Disabilities, and Implications for Retirement Security," Working Papers wp277, University of Michigan, Michigan Retirement Research Center.
    20. Isabelle Joumard & Mauro Pisu & Debbie Bloch, 2012. "Tackling income inequality: The role of taxes and transfers," OECD Journal: Economic Studies, OECD Publishing, vol. 2012(1), pages 37-70.
    21. Sergi Jimenez-Martin & Judit Castello, 2013. "Business cycle and spillover effects on pre-retirement behavior in Spain," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-23, December.
    22. Ulrike Famira-Mühlberger & Ulrike Huemer & Christine Mayrhuber, 2015. "The Impact of Social Security Systems on the Employment Rate of the Elderly in Traditional Welfare States," WIFO Working Papers 499, WIFO.
    23. Isabelle Joumard & Mauro Pisu & Debra Bloch, 2012. "Less Income Inequality and More Growth – Are They Compatible? Part 3. Income Redistribution via Taxes and Transfers Across OECD Countries," OECD Economics Department Working Papers 926, OECD Publishing.

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    Keywords

    Disability; capacity for work; business cycle; international comparisons;

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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