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Take-Up and Labor Supply Responses to Disability Insurance Earnings Limits

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  • Krekó,Judit
  • Prinz,Daniel
  • Weber,Andrea

Abstract

In most disability insurance programs, beneficiaries lose some or all of their benefitsif they earn above an earnings threshold. While intended to screen out applicants with high remaining working capacity,earnings limits can also distort the labor supply of beneficiaries. This paper develops a simple framework toevaluate this trade-off. It uses a reduction in the earnings limit in Hungary to examine screening and labor supplyresponses. The findings show that the policy changed selection into the program modestly, but it reduced laborsupply significantly. Viewed through the lens of the model, these findings suggest that the earnings threshold should be higher.

Suggested Citation

  • Krekó,Judit & Prinz,Daniel & Weber,Andrea, 2023. "Take-Up and Labor Supply Responses to Disability Insurance Earnings Limits," Policy Research Working Paper Series 10325, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10325
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    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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