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Income Effects of Disability Benefits

Author

Listed:
  • Becker, Sebastian

    (Federal Ministry of Labor and Social Affairs (BMAS), Germany)

  • Gehlen, Annica

    (DIW Berlin)

  • Geyer, Johannes

    (DIW Berlin)

  • Haan, Peter

    (DIW Berlin)

Abstract

We provide novel evidence about the incentive and welfare effects of an increase in the generosity of disability benefits. Importantly, a unique policy variation in Germany allows us to isolate the income effect of a change in benefit generosity. We leverage this quasi-experimental policy variation using an RD design to estimate the effect of increasing disability benefits on employment, earnings, labor market transitions, and mortality outcomes using administrative data on the universe of new disability benefit recipients. Contrary to previous literature, our analysis reveals no significant impact on the employment and earnings of DI recipients due to the increased benefits. However, we find a sizable effect of the probability of returning to the labor market. We find no effects on recipient mortality six years after benefit award, but estimates imply a notable reduction in poverty risk, highlighting meaningful welfare implications of increased generosity.

Suggested Citation

  • Becker, Sebastian & Gehlen, Annica & Geyer, Johannes & Haan, Peter, 2024. "Income Effects of Disability Benefits," IZA Discussion Papers 17298, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17298
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    More about this item

    Keywords

    disability insurance; pension reform; wealth effect; labor supply; mortality; RDD;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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