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Disability Testing and Retirement

Author

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  • Cremer, Helmuth
  • Lozachmeur, Jean-Marie
  • Pestieau, Pierre

Abstract

This paper studies the design of retirement and disability policies. It illustrates the often observed exit from the labor force of healthy workers through disability insurance schemes. Two types of individuals, disabled and leisure-prone ones, have the same disutility for labor and cannot be distinguished. However, they are not counted in the same way in social welfare. Benefits depend on retirement age and on the (reported) health status. We determine first- and second-best optimal benefit levels and retirement ages and focus on the distortions which may be induced in the individuals' retirement decision. Then we introduce the possibility of testing which sorts out disabled workers from healthy but retirement-prone workers. We show that such testing can increase both social welfare and the rate of participation of elderly workers; in addition disabled workers are better taken care of. It is not optimal to test all applicants. Surprisingly, the (second-best) solution may imply later retirement for the disabled than for the leisure prone. In that case, the disabled are compensated by higher benefits.
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Suggested Citation

  • Cremer, Helmuth & Lozachmeur, Jean-Marie & Pestieau, Pierre, 2004. "Disability Testing and Retirement," IDEI Working Papers 281, Institut d'Économie Industrielle (IDEI), Toulouse.
    • Handle: RePEc:ide:wpaper:3000
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    References listed on IDEAS

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    15. Cremer, Helmuth & Lozachmeur, Jean-Marie & Pestieau, Pierre, 2004. "Social security, retirement age and optimal income taxation," Journal of Public Economics, Elsevier, vol. 88(11), pages 2259-2281, September.
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    Citations

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    Cited by:

    1. Pestieau, Pierre & Racionero, María, 2009. "Optimal redistribution with unobservable disability: Welfarist versus non-welfarist social objectives," European Economic Review, Elsevier, vol. 53(6), pages 636-644, August.
    2. Laurence Jacquet & Dirk Van de Gaer, 2015. "Politiques fiscales optimales pour les bas revenus et principe de compensation," Revue économique, Presses de Sciences-Po, vol. 66(3), pages 579-600.
    3. Laurence Jacquet, 2014. "Tagging and redistributive taxation with imperfect disability monitoring," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 42(2), pages 403-435, February.
    4. Jacquet, Laurence & Van de Gaer, Dirk, 2011. "A comparison of optimal tax policies when compensation or responsibility matter," Journal of Public Economics, Elsevier, vol. 95(11), pages 1248-1262.
    5. Helmuth Cremer & Jean‐Marie Lozachmeur & Pierre Pestieau, 2008. "Social Security And Retirement Decision: A Positive And Normative Approach," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 213-233, April.
    6. Vandenberghe Vincent, 2021. "Differentiating retirement age to compensate for health differences," IZA Journal of Labor Policy, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 11(1), pages 1-34, May.
    7. Pestieau, Pierre & Racionero, Maria, 2016. "Harsh occupations, life expectancy and social security," Economic Modelling, Elsevier, vol. 58(C), pages 194-202.
    8. Maria Racionero & Pierre Pestieau, 2012. "Harsh occupations, health status and social security," CEPR Discussion Papers 672, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    9. Laurence Jacquet, 2010. "Take it or Leave it: Take-up, Optimal Transfer Programs, and Monitoring," CESifo Working Paper Series 3018, CESifo.

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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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