Award errors and permanent disability benefits in Spain

In this paper we estimate equations for deserving or "true disability indicator" and receiv- ing disability benefits to evaluate the award error as the difference between both probabilities using survey data from Spain. As expected award errors are not randomly distributed across the population. We find that individuals aged between 55 and 59, self-employed, working in an agricultural sector or living in a depressed region, have a significantly higher probability of receiving a benefit without deserving than the rest of individuals. We also find evidence of gender discrimination since males have a significantly higher probability of receiving a benefit without deserving it. Finally we show that the probability of getting a benefit being healthy is not distributed at random across the population. We have estimated the cost of wrongful benefit concession at a minimum of 1500 million euros or 0,2 percent of the Spanish GDP for year 2000. All these findings confirm that disability benefits are being used as an instrument for exiting the labor market for individuals approaching the early retirement age. Since the awarding process depends on Social Security Regional offices, this implies that some regional offices are applying loosely the requirements for granting disability benefits.