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Disability Insurance Benefits and Labor Supply

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  • Jonathan Gruber

Abstract

A critical input for assessing the optimal size of disability insurance programs is the elasticity of labor force participation with respect to the generosity of benefits. Unfortunately, this parameter has been difficult to estimate in the context of the U.S. disability insurance program since all workers face an identical benefits schedule. I surmount this problem by studying the experience of Canada, which operates two distinct disability insurance programs: for Quebec and for the rest of Canada. The latter program raised its benefits by 36 percent in January 1987, whereas benefits in Quebec were constant. I find a sizable labor supply response to the policy change; my central estimates imply an elasticity of labor force nonparticipation with respect to disability insurance benefits of 0.280.36.

Suggested Citation

  • Jonathan Gruber, 2000. "Disability Insurance Benefits and Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1162-1183, December.
    • Handle: RePEc:ucp:jpolec:v:108:y:2000:i:6:p:1162-1183
    DOI: 10.1086/317682
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    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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