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Do disability benefits hinder work resumption after recovery?

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  • Koning, Pierre
  • Muller, Paul
  • Prudon, Roger

Abstract

While a large share of Disability Insurance recipients in OECD countries are expected to recover, outflow rates from temporary disability schemes are typically negligible. We estimate the disincentive effects of disability benefits on the response to a (mental) health improvement using administrative data on all Dutch disability benefit applicants. We compare those below the DI eligibility threshold with those above and find that disincentives significantly reduce work resumption after health improves. Approximately half of the response to recovery is offset by benefits. Estimates from a structural labor supply model suggest that disincentives are substantially larger when the worker’s earnings capacity is fully restored.

Suggested Citation

  • Koning, Pierre & Muller, Paul & Prudon, Roger, 2022. "Do disability benefits hinder work resumption after recovery?," Journal of Health Economics, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:jhecon:v:82:y:2022:i:c:s0167629622000133
    DOI: 10.1016/j.jhealeco.2022.102593
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    2. Koning, Pierre & Muller, Paul & Prudon, Roger, 2022. "Why Do Temporary Workers Have Higher Disability Insurance Risks Than Permanent Workers?," IZA Discussion Papers 15173, Institute of Labor Economics (IZA).
    3. Giachello, Marta & Leporatti, Lucia & Levaggi, Rosella & Montefiori, Marcello, 2024. "The illness trap: The impact of disability benefits on willingness to receive HCV treatment," Economics & Human Biology, Elsevier, vol. 52(C).
    4. Guida Ayza Estopa, 2024. "Return-to-work policies for disability insurance recipients: The role of financial incentives," French Stata Users' Group Meetings 2024 17, Stata Users Group.

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    More about this item

    Keywords

    Disability insurance; Mental health; Labor supply; Health shocks;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • I1 - Health, Education, and Welfare - - Health
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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