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Measuring the (income) effect of disability insurance generosity on labour market participation

Marie, Olivier and Vall Castello, Judit (2012) Measuring the (income) effect of disability insurance generosity on labour market participation. Journal of Public Economics, 96 (1-2). pp. 198-210. ISSN 0047-2727

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Abstract

We analyze the employment effect of a law that provides for a 36% increase in the generosity of disability insurance (DI) for claimants who are, as a result of their lack of skills and of the labour market conditions they face, deemed unlikely to find a job. The selection process for treatment is therefore conditional on having a low probability of employment, making evaluation of its effect intrinsically difficult. We exploit the fact that the benefit increase is only available to individuals aged 55 or older, estimating its impact using a regression discontinuity approach. Our first results indicate a large drop in employment for disabled individuals who receive the increase in the benefit. Testing for the linearity of covariates around the eligibility age threshold reveals that the age at which individuals start claiming DI is not continuous: the benefit increase appears to accelerate the entry rate of individuals aged 55 or over. We obtain new estimates excluding this group of claimants, and find that the policy decreases the employment probability by 8%. We conclude that the observed DI generosity elasticity of 0.22 on labour market participation is mostly due to income effects since benefit receipt is not work contingent in the system studied.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-public...
Additional Information: © 2011 Elsevier
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HM Sociology
H Social Sciences > HV Social pathology. Social and public welfare. Criminology
J Political Science > JA Political science (General)
R Medicine > RA Public aspects of medicine > RA0421 Public health. Hygiene. Preventive Medicine
Journal of Economic Literature Classification System: I - Health, Education, and Welfare > I3 - Welfare and Poverty > I38 - Government Policy; Provision and Effects of Welfare Programs
Sets: Departments > Sociology
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 09 Dec 2011 09:28
URL: http://eprints.lse.ac.uk/40085/

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