The Effect of Disability Pension Incentives on Early Retirement Decisions

Barbara Hanel ()
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Barbara Hanel: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; and Institute for the Study of Labor (IZA)
Authors registered in the RePEc Author Service: Barbara Broadway ()

Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Abstract: I investigate the incentive effects of disability pensions on the labour supply decision. The implicit tax rate on further work is included as a forward looking incentive measure in order to investigate the effect of disability benefits on disability retirement entry as a special type of early retirement. A substantial change of the disability pension legislation caused exogenous variation in disability benefits in Germany in 2001 and is used to obtain estimates of individual’s responses to financial incentives. Benefit levels appear to have no effect on the labour market behaviour. At the same time, there is a sizable and significant disincentive effect of implicit taxes on labour market income, indicating that alleviating such disincentives would likely increase labour force participation. Since the response to financial incentives occurs mainly among those in good health, such a policy might on the other hand imperil the aim of providing insurance against a health induced loss of ones working capacity.

Keywords: Disability pensions; labour force exit (search for similar items in EconPapers)
JEL-codes: I12 J26 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2011-03
New Economics Papers: this item is included in nep-age, nep-dem, nep-lab and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The effect of disability pension incentives on early retirement decisions (2012)
Working Paper: Disability Pensions and Labor Supply (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:iae:iaewps:wp2011n05

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