NBER Disability Research Center

NB13-8, An International Comparison of the Efficiency of Government Disability Programs

Enrica Croda, Università Ca’Foscari Venezia
Jonathan Skinner, Dartmouth College and NBER

There are large variations across countries in the percentage of GDP devoted to disability payments, ranging in western countries from 0.4 percent in Canada to 2.5 percent in Sweden. Previous research has stressed the importance of institutional features of DI programs in explaining overall costs, but much less is known about the efficiency of such programs in their ability to screen applicants and thereby avoid Type I error (providing benefits to healthy recipients) or Type II error (denying benefits to unhealthy applicants). We propose to infer attributes of country-level DI programs by using micro-level data on people age 50-64 across 12 countries in the Survey of Health, Ageing, and Retirement in Europe (SHARE) and the Health and Retirement Study (HRS). We first develop a model that decomposes cross-country differences in DI participation into (a) overall generosity or budgetary cost of the program, (b) insurance against poor labor market opportunities, and (c) the screening quality of the program, in the sense of avoiding Type I and II errors. Preliminary results suggest large differences in the “efficiency” of such programs, defined as screening quality conditional on budgetary cost, but much work remains to be done.