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Disability Benefits, Consumption Insurance, and Household Labor Supply

David Autor, Andreas Ravndal Kostol, Magne Mogstad, Bradley Setzler

NBER Working Paper No. 23466
Issued in June 2017, Revised in August 2018
NBER Program(s):Aging, Labor Studies, Public Economics

There is no evaluation of the consequences of Disability Insurance (DI) receipt that captures the effects on households' net income and consumption expenditure, family labor supply, or benefits from other programs. Combining detailed register data from Norway with an instrumental variables approach based on random assignment to appellant judges, we comprehensively assess how DI receipt affects these understudied outcomes. To consider the welfare implications of the findings from this instrumental variables approach, we estimate a dynamic model of household behavior that translates employment, reapplication and savings decisions into revealed preferences for leisure and consumption. The model-based results suggest that on average, the willingness to pay for DI receipt is positive and sizable. Because spousal labor supply strongly buffers the household income and consumption effects of DI allowances, the estimated willingness to pay for DI receipt is smaller for married than single applicants.

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Document Object Identifier (DOI): 10.3386/w23466

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