Disability Insurance Benefits and Labor Supply Decisions: Evidence from a Discontinuity in Benefit Awards

Tobias Müller and Stefan Boes

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores the effects of disability insurance (DI) benefits on the labor market decision of existing DI beneficiaries using data from the Swiss Household Panel. We use a fuzzy regression discontinuity (RD) design to identify the effect of DI benefits on the decision of working full-time, part-time or staying out of the labor force by exploiting a discontinuity in the DI benefit award rate. Overall, our results suggest that the Swiss DI system creates substantial lock-in effects which heavily influence the working decision of existing beneficiaries: the benefit receipt increases the probability of working part-time by about 41%-points, decreases the probability of working full-time by about 42%-points but has little or no effects on the probability of staying out of the labor force for the average beneficiary. Therefore, DI benefits induce a shift in the labor supply of existing beneficiaries in the sense that they reduce their work intensity from working full-time to part-time adding a possible explanation for the low DI outflow across the OECD.

Keywords: Disability insurance benefits; Fuzzy regression discontinuity design; Labor market participation; Endogenous switching models; Maximum simulated likelihood (search for similar items in EconPapers)
JEL-codes: C35 J20 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ias, nep-pbe and nep-pke
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https://mpra.ub.uni-muenchen.de/70840/1/MPRA_paper_70840.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/70858/1/MPRA_paper_70858.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/71694/1/MPRA_paper_71694.pdf revised version (application/pdf)

Related works:
Journal Article: Disability insurance benefits and labor supply decisions: evidence from a discontinuity in benefit awards (2020)
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