IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/70957.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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 a fuzzy regression discontinuity (RD) design. We 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 above the age of 55. Overall, our results suggest that the Swiss DI system creates substantial lock-in effects which heavily influence the labor supply 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 which adds a possible explanation for the low DI outflow observed all across the OECD.

Suggested Citation

  • Müller, Tobias & Boes, Stefan, 2016. "Disability Insurance Benefits and Labor Supply Choices: Evidence from a Discontinuity in Benefit Awards," MPRA Paper 70957, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:70957
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/70957/1/MPRA_paper_70957.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs In Economics," Working Papers 1118, Princeton University, Department of Economics, Industrial Relations Section..
    2. Keane, Michael P, 1994. "A Computationally Practical Simulation Estimator for Panel Data," Econometrica, Econometric Society, vol. 62(1), pages 95-116, January.
    3. Bound, John & Burkhauser, Richard V., 1999. "Economic analysis of transfer programs targeted on people with disabilities," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 51, pages 3417-3528, Elsevier.
    4. Cai, Lixin, 2010. "The relationship between health and labour force participation: Evidence from a panel data simultaneous equation model," Labour Economics, Elsevier, vol. 17(1), pages 77-90, January.
    5. Eric French & Jae Song, 2014. "The Effect of Disability Insurance Receipt on Labor Supply," American Economic Journal: Economic Policy, American Economic Association, vol. 6(2), pages 291-337, May.
    6. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555.
    7. Vassilis A. Hajivassiliou & Daniel L. McFadden, 1998. "The Method of Simulated Scores for the Estimation of LDV Models," Econometrica, Econometric Society, vol. 66(4), pages 863-896, July.
    8. Marie, Olivier & Vall Castello, Judit, 2012. "Measuring the (income) effect of disability insurance generosity on labour market participation," Journal of Public Economics, Elsevier, vol. 96(1), pages 198-210.
    9. Jonathan Gruber, 2000. "Disability Insurance Benefits and Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1162-1183, December.
    10. Philip de Jong & Maarten Lindeboom & Bas van der Klaauw, 2011. "Screening Disability Insurance Applications," Journal of the European Economic Association, European Economic Association, vol. 9(1), pages 106-129, February.
    11. Christian Gouriéroux & Alain Monfort, 1991. "Simulation Based Inference in Models with Heterogeneity," Annals of Economics and Statistics, GENES, issue 20-21, pages 69-107.
    12. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
    13. Bound, John, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," American Economic Review, American Economic Association, vol. 79(3), pages 482-503, June.
    14. Lorenzo Cappellari & Stephen P. Jenkins, 2006. "Calculation of multivariate normal probabilities by simulation, with applications to maximum simulated likelihood estimation," Stata Journal, StataCorp LP, vol. 6(2), pages 156-189, June.
    15. repec:adr:anecst:y:1991:i:20-21:p:04 is not listed on IDEAS
    16. Eva Frutos & Judit Castello, 2015. "Equal health, equal work? The role of disability benefits in employment after controlling for health status," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(3), pages 329-340, April.
    17. Shu, Pian, 2015. "Asset accumulation and labor force participation of disability insurance applicants," Journal of Public Economics, Elsevier, vol. 129(C), pages 26-40.
    18. Gruber, Jonathan & Kubik, Jeffrey D., 1997. "Disability insurance rejection rates and the labor supply of older workers," Journal of Public Economics, Elsevier, vol. 64(1), pages 1-23, April.
    19. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
    20. Chen, Susan & van der Klaauw, Wilbert, 2008. "The work disincentive effects of the disability insurance program in the 1990s," Journal of Econometrics, Elsevier, vol. 142(2), pages 757-784, February.
    21. Vassilis A. Hajivassiliou & Daniel McFadden & Paul A. Ruud, 1994. "Simulation of Multivariate Normal Rectangle Probabilities: Theoretical and Computational Results," Cowles Foundation Discussion Papers 1021R, Cowles Foundation for Research in Economics, Yale University.
    22. Bunch, David S., 1991. "Estimability in the multinomial probit model," Transportation Research Part B: Methodological, Elsevier, vol. 25(1), pages 1-12, February.
    23. Geweke, John & Keane, Michael P & Runkle, David, 1994. "Alternative Computational Approaches to Inference in the Multinomial Probit Model," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 609-632, November.
    24. David H. Autor & Mark G. Duggan, 2003. "The Rise in the Disability Rolls and the Decline in Unemployment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 157-206.
    25. Moore, Timothy J., 2015. "The employment effects of terminating disability benefits," Journal of Public Economics, Elsevier, vol. 124(C), pages 30-43.
    26. Lee, Kyung-woo, 2015. "Optimal disability insurance with unobservable skill heterogeneity," Journal of Public Economics, Elsevier, vol. 122(C), pages 94-109.
    27. Alfonso Miranda & Sophia Rabe-Hesketh, 2006. "Maximum likelihood estimation of endogenous switching and sample selection models for binary, ordinal, and count variables," Stata Journal, StataCorp LP, vol. 6(3), pages 285-308, September.
    28. Bunch, David S., 1991. "Estimability in the Multinomial Probit Model," University of California Transportation Center, Working Papers qt1gf1t128, University of California Transportation Center.
    29. Kauer, Lukas, 2014. "The Effect of Cutting Disability Insurance Benefits on Labor Supply in Households," Economics Working Paper Series 1401, University of St. Gallen, School of Economics and Political Science.
    30. Bhat, Chandra R., 2001. "Quasi-random maximum simulated likelihood estimation of the mixed multinomial logit model," Transportation Research Part B: Methodological, Elsevier, vol. 35(7), pages 677-693, August.
    31. Karlström, Anders & Palme, Mårten & Svensson, Ingemar, 2008. "The employment effect of stricter rules for eligibility for DI: Evidence from a natural experiment in Sweden," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2071-2082, October.
    32. Staubli, Stefan, 2011. "The impact of stricter criteria for disability insurance on labor force participation," Journal of Public Economics, Elsevier, vol. 95(9-10), pages 1223-1235, October.
    33. David Roodman, 2011. "Fitting fully observed recursive mixed-process models with cmp," Stata Journal, StataCorp LP, vol. 11(2), pages 159-206, June.
    34. Michele Campolieti, 2004. "Disability Insurance Benefits and Labor Supply: Some Additional Evidence," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 863-890, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tobias Müller & Stefan Boes, 2020. "Disability insurance benefits and labor supply decisions: evidence from a discontinuity in benefit awards," Empirical Economics, Springer, vol. 58(5), pages 2513-2544, May.
    2. Andreas Haller & Stefan Staubli & Josef Zweimüller, 2024. "Designing Disability Insurance Reforms: Tightening Eligibility Rules or Reducing Benefits?," Econometrica, Econometric Society, vol. 92(1), pages 79-110, January.
    3. Chiara Dal Bianco, 2019. "Labour Supply and Welfare Effects of Disability Insurance: A Survey," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 5(1), pages 161-189, March.
    4. Alexander Gelber & Timothy J. Moore & Alexander Strand, 2017. "The Effect of Disability Insurance Payments on Beneficiaries' Earnings," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 229-261, August.
    5. Deuchert, Eva & Eugster, Beatrix, 2019. "Income and substitution effects of a disability insurance reform," Journal of Public Economics, Elsevier, vol. 170(C), pages 1-14.
    6. Deuchert, E. & Eugster, B., 2016. "Crawling Up the Cash Cliff? Behavioral Responses to a Disability Insurance Reform," Health, Econometrics and Data Group (HEDG) Working Papers 16/21, HEDG, c/o Department of Economics, University of York.
    7. Mathilde Godard & Pierre Koning & Maarten Lindeboom, 2024. "Application and Award Responses to Stricter Screening in Disability Insurance," Journal of Human Resources, University of Wisconsin Press, vol. 59(5), pages 1353-1386.
    8. Lex Borghans & Anne C. Gielen & Erzo F. P. Luttmer, 2014. "Social Support Substitution and the Earnings Rebound: Evidence from a Regression Discontinuity in Disability Insurance Reform," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 34-70, November.
    9. Mathilde Godard & Maarten Lindeboom & Pierre Koning, 2018. "Targeting disability insurance applications with screening," Post-Print halshs-01960488, HAL.
    10. Andreas Ravndal Kostol & Magne Mogstad, 2014. "How Financial Incentives Induce Disability Insurance Recipients to Return to Work," American Economic Review, American Economic Association, vol. 104(2), pages 624-655, February.
    11. Barbara Broadway & Sonja C. Kassenboehmer, 2019. "Employment effects of job counseling for disability insurance recipients," Melbourne Institute Working Paper Series wp2019n18, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    12. Liebert, Helge, 2019. "Does external medical review reduce disability insurance inflow?," Journal of Health Economics, Elsevier, vol. 64(C), pages 108-128.
    13. Chiara Dal Bianco, 2023. "Disability Insurance and the Effects of Return-to-work Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 49, pages 351-373, July.
    14. Matthew J. Hill & Jose I. Silva & Judit Vall Castello, 2019. "Act now: The effects of the 2008 Spanish disability reform," Health Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 906-920, July.
    15. Moore, Timothy J., 2015. "The employment effects of terminating disability benefits," Journal of Public Economics, Elsevier, vol. 124(C), pages 30-43.
    16. Pilar García‐Gómez & Anne C. Gielen, 2018. "Mortality effects of containing moral hazard: Evidence from disability insurance reform," Health Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 606-621, March.
    17. Eva Frutos & Judit Castello, 2015. "Equal health, equal work? The role of disability benefits in employment after controlling for health status," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(3), pages 329-340, April.
    18. Silva, José I. & Vall-Castello, Judit, 2012. "Evaluating the Impact of a Reduction in the Generosity of Disability Benefits: The 2008 Spanish Reform," IZA Discussion Papers 6482, Institute of Labor Economics (IZA).
    19. Barbara Broadway & Duncan McVicar, 2021. "Reducing the Generosity and Increasing the Conditionality of Welfare Benefits for People with Disability: “Turning the Supertanker” or “Squeezing the Balloon”?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(3), pages 848-873, July.
    20. Andersson, Josefine, 2018. "Financial incentives to work for disability insurance recipients - Sweden’s special rules for continuous deduction," Working Paper Series 2018:7, IFAU - Institute for Evaluation of Labour Market and Education Policy.

    More about this item

    Keywords

    Disability insurance benefits; Labor market participation; Fuzzy regression discontinuity design 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
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:70957. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.