Disability Benefit Generosity and Labor Force Withdrawal
A key component for estimating the optimal size and structure of disability insurance (DI) programs is the elasticity of DI claiming with respect to benefit generosity. Yet, in many countries, including the United States, all workers face identical benefit schedules, which are a function of one’s labor market history, making it difficult to separate the effect of the benefit level from the effect of unobserved preferences for work on individuals’ claiming decisions. To circumvent this problem, we exploit exogenous variation in DI benefits in Austria arising from several reforms to its DI and old age pension system in the 1990s and 2000s. We use comprehensive administrative social security records data on the universe of Austrian workers to compute benefit levels under six different regimes, allowing us to identify and precisely estimate the elasticity of DI claiming with respect to benefit generosity. We find that, over this time period, a one percent increase in potential DI benefits was associated with a 1.2 percent increase in DI claiming.
We thank Arie Kapteyn, Nicole Maestas, Philippe Ruh, Josef Zweimüller, participants of the 2015 NBER Summer Institute Aging Workshop and seminar participants at RAND and the University of Manitoba for helpful comments and suggestions, and Sarah Kups for excellent research assistance. This paper was supported by the National Institute on Aging through grant numbers R21AG037891 and R01AG046290. Its contents are solely the responsibility of the authors and do not represent the official views of the National Institute on Aging. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
I have received financial support summing to at least $10,000 in the past three years from the following organizations:
(1) U.S. Social Security Administration
(2) The Alfred P. Sloan Foundation
(3) The National Institute on Aging
Mullen, Kathleen J. & Staubli, Stefan, 2016. "Disability benefit generosity and labor force withdrawal," Journal of Public Economics, Elsevier, vol. 143(C), pages 49-63. citation courtesy of