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Disability Insurance Benefits and Labor Supply Decisions: Evidence from a Discontinuity in Benefit Awards

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  • Müller, Tobias
  • Boes, Stefan

Abstract

This paper explores the effects of disability insurance (DI) benefits on the labor market decision of existing DI beneficiaries using data from the Swiss Household Panel. We use a fuzzy regression discontinuity (RD) design to identify the effect of DI benefits on the decision of working full-time, part-time or staying out of the labor force by exploiting a discontinuity in the DI benefit award rate. Overall, our results suggest that the Swiss DI system creates substantial lock-in effects which heavily influence the working decision of existing beneficiaries: the benefit receipt increases the probability of working part-time by about 41%-points, decreases the probability of working full-time by about 42%-points but has little or no effects on the probability of staying out of the labor force for the average beneficiary. Therefore, DI benefits induce a shift in the labor supply of existing beneficiaries in the sense that they reduce their work intensity from working full-time to part-time adding a possible explanation for the low DI outflow across the OECD.

Suggested Citation

  • Müller, Tobias & Boes, Stefan, 2016. "Disability Insurance Benefits and Labor Supply Decisions: Evidence from a Discontinuity in Benefit Awards," MPRA Paper 70840, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:70840
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    1. Thomas Barnay & Éric Defebvre, 2021. "Working conditions and disabilities in French workers: a career-long retrospective study," Erudite Working Paper 2021-14, Erudite.
    2. Sylvain Chareyron & Naomie Mahmoudi, 2022. "The effects of disability benefits on the employment of low-skilled youth: Evidence from France," Erudite Working Paper 2022-09, Erudite.

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    More about this item

    Keywords

    Disability insurance benefits; Fuzzy regression discontinuity design; Labor market participation; Endogenous switching models; Maximum simulated likelihood;
    All these keywords.

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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