Induced Entry in Disability Insurance: Evidence from Canada
Disability insurance (DI) programs are large and experienced substantial growth over the last decades. This paper studies the induced entry effect of two important DI program parameters: (i) DI benefit generosity and (ii) financial work incentives for DI recipients. Using two Canadian DI reforms and administrative tax records from 20 percent of Canadians, we find that more generous DI benefits induce substantial entry into DI. Specifically, a 1,000 CAD increase in benefits increases average DI take up by 0.126 percentage points, implying a DI take up elasticity with respect to benefits of 0.67. On the other hand, we find that the introduction of an earnings disregard has a quantitatively small effect on labor supply and entry into DI. Specifically, a 1,000 CAD increase in the earnings disregard leads to induced entry of 0.002 percentage points.
The research reported herein was performed pursuant to grant RDR18000003 from the US Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA, any agency of the Federal Government, or NBER. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.