Can Helping the Sick Hurt the Able? Incentives, Information and Disruption in a Disability-Related Welfare Reform

Nitika Bagaria (), Barbara Petrongolo and John van Reenen
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Nitika Bagaria: London School of Economics

No 9089, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Disability rolls have escalated in developed nations over the last 40 years. The UK, however, stands out because the numbers on these benefits stopped rising when a welfare reform was introduced that integrated disability benefits with unemployment insurance (UI). This policy reform improved job information and sharpened bureaucratic incentives to find jobs for the disabled (relative to those on UI). We exploit the fact that the policy was rolled-out quasi-randomly across geographical areas. In the long-run the policy improved the outflows from disability benefits by 6% and had an (insignificant) 1% increase in unemployment outflows. This is consistent with a model where information helps both groups, but bureaucrats were given incentives to shift effort towards helping the disabled find jobs and away from helping the unemployed. Interestingly, in the short-run the policy had a negative impact for both groups, suggesting important disruption effects. We estimate that it takes about six years for the estimated benefits of the reform to exceed its costs, which is beyond the time horizon of most policy-makers.

Keywords: unemployment benefits; public sector; incentives; performance standards (search for similar items in EconPapers)
JEL-codes: H51 I13 J18 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2015-05
New Economics Papers: this item is included in nep-hrm, nep-lab and nep-pbe
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Published - published in: Economic Journal, 2019, 129 (624), 3189-3218

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Related works:
Working Paper: Can helping the sick hurt the able? Incentives, information and disruption in a disability-related welfare reform (2015)
Working Paper: Can helping the sick hurt the able? Incentives, information and disruption in a disability-related welfare reform (2015)
Working Paper: Can helping the sick hurt the able? Incentives, information and disruption in a disability-related welfare reform (2015)
Working Paper: Can Helping the Sick Hurt the Able? Incentives, Information and Disruption in a Disability-related Welfare Reform (2015)
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