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Financial work incentives for disability benefit recipients: Lessons from a randomized field experiment

  • Buetler, Monika

    ()

  • Lechner, Michael

    ()

  • Thiemann, Petra

    ()

  • Deuchert, Eva

    ()

  • Staubli, Stefan

    ()

Disability insurance (DI) beneficiaries lose some of their benefits if their earnings exceed certain thresholds (“cash-cliffs”). When this reduction is too high, this implicit taxation of earnings is considered to be one of the prime reasons for the low outflow from DI. This paper analyzes a conditional cash program that incentivizes work related reductions of disability benefits in Switzerland. A randomized group of DI beneficiaries receive the offer to claim a payment of up to CHF 72,000 (USD 71,000) if they take up or expand employment and reduce DI claims. This paper presents the results of the short-term evaluation by analyzing the first reactions to the announcement of seed capital. Overall, the interest in taking-up the financial incentive is low at only 3%. Individuals close to cash-cliffs react more on seed capital but the overall magnitude is small. Our results suggest that work-disincentives imposed by cash-cliffs are unlikely to be the main driver for low employment and outflow from the Swiss disability insurance system, despite the fact that the partial disability insurance system generates a non-linear budget set and bunching behavior at cash-cliffs prior to the implementation of seed capital.

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File URL: http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1406.pdf
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Paper provided by University of St. Gallen, School of Economics and Political Science in its series Economics Working Paper Series with number 1406.

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Length: 33 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:usg:econwp:2014:06
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  1. Marie, O. & Vall Castello, J., 2011. "Measuring the (income) effect of disability insurance generosity on labour market participation," ROA Research Memorandum 12, Maastricht University, Research Centre for Education and the Labour Market (ROA).
  2. Kapteyn, Arie & Smith, James P. & van Soest, Arthur, 2009. "Work Disability, Work, and Justification Bias in Europe and the U.S," IZA Discussion Papers 4388, Institute for the Study of Labor (IZA).
  3. Monika Bütler & Lukas Inderbitzin & Jonathan F. Schulz & Stefan Staubli, 2012. "Die Auswirkungen bedarfsabhängiger Leistungen: Ergänzungsleistungen in der Schweiz," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 13(3), pages 179-195, 08.
  4. Andreas Ravndal Kostøl & Magne Mogstad, 2013. "How Financial Incentives Induce Disability Insurance Recipients to Return to Work," NBER Working Papers 19016, National Bureau of Economic Research, Inc.
  5. Robert R. Weathers II & Jeffrey Hemmeter, 2011. "The impact of changing financial work incentives on the earnings of Social Security Disability Insurance (SSDI) beneficiaries," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 30(4), pages 708-728, 09.
  6. Frank, Richard G. & Lamiraud, Karine, 2009. "Choice, price competition and complexity in markets for health insurance," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 550-562, August.
  7. Philip de Jong & Maarten Lindeboom & Bas van der Klaauw, 2011. "Screening Disability Insurance Applications," Journal of the European Economic Association, European Economic Association, vol. 9(1), pages 106-129, 02.
  8. Staubli, Stefan, 2011. "The impact of stricter criteria for disability insurance on labor force participation," Journal of Public Economics, Elsevier, vol. 95(9-10), pages 1223-1235, October.
  9. John Beshears & James Choi & David Laibson & Brigitte Madrian, 2008. "How are Preferences Revealed?," Yale School of Management Working Papers amz2466, Yale School of Management.
  10. Annemiek van Vuren & Daniel van Vuuren, 2005. "Financial incentives in disability insurance in the Netherlands," CPB Discussion Paper 45, CPB Netherlands Bureau for Economic Policy Analysis.
  11. Michele Campolieti, 2004. "Disability Insurance Benefits and Labor Supply: Some Additional Evidence," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 863-890, October.
  12. Emmanuel Saez, 1999. "Do Taxpayers Bunch at Kink Points?," NBER Working Papers 7366, National Bureau of Economic Research, Inc.
  13. repec:mpr:mprres:4739 is not listed on IDEAS
  14. Campolieti, Michele & Riddell, Chris, 2012. "Disability policy and the labor market: Evidence from a natural experiment in Canada, 1998–2006," Journal of Public Economics, Elsevier, vol. 96(3), pages 306-316.
  15. David Stapleton Gina Livermore edited by Craig Thornton Bonnie ODay Robert R Weathers II Krista Harrison So ONeil Emily Sama Martin David Wittenburg Debra Wright, 2008. "Ticket to Work at the Crossroads A Solid Foundation with an Uncertain Future," Mathematica Policy Research Reports 1168edda51a747edbc836f517, Mathematica Policy Research.
  16. 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.
  17. Hamish Low & Luigi Pistaferri, 2010. "Disability Risk, Disability Insurance and Life Cycle Behavior," NBER Working Papers 15962, National Bureau of Economic Research, Inc.
  18. repec:mpr:mprres:6135 is not listed on IDEAS
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  20. repec:mpr:mprres:4154 is not listed on IDEAS
  21. repec:mpr:mprres:6153 is not listed on IDEAS
  22. David Stapleton Gina Livermore Criag Thornton Bonnie ODay Robert R Weathers II Krista Harrison So ONeil Emily Sama Martin David Wittenburg Debra Wright, 2008. "Ticket to Work at the Crossroads A Solid Foundation with an Uncertain Future," Mathematica Policy Research Reports 700b9069e84340a3a705d1509, Mathematica Policy Research.
  23. Craig Thornton & Gina Livermore & David Stapleton & John Kregel & Tim Silva & Bonnie O'Day & Thomas Fraker & W. Grant Revell & Jr. & Heather Schroeder & Meredith Edwards, 2004. "Evaluation of the Ticket to Work Program Initial Evaluation Report," Mathematica Policy Research Reports 8c1605c49dfc43dfa0d23dce4, Mathematica Policy Research.
  24. Jonathan Gruber, 2000. "Disability Insurance Benefits and Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1162-1183, December.
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