Return-to-Work Policies for Disability Insurance Recipients: The Role of Financial Incentives

Guida Ayza Estopà, Bart Cockx, Sébastien Fontenay and Ilan Tojerow
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Guida Ayza Estopà: Université Libre de Bruxelles, Solvay Brussels School of Economics and Management (SBS-EM), Department of Applied Economics (DULBEA)
Bart Cockx: Ghent University, Department of Economics, CESifo, UCLouvain, IRES/LIDAM, IZA Institute of Labor Economics, Maastricht University
Sébastien Fontenay: Universidad de Alcalà, Department of Economics, IZA Institute of Labor Economics
Ilan Tojerow: Université Libre de Bruxelles, Solvay Brussels School of Economics and Management (SBS-EM), Department of Applied Economics (DULBEA), IZA Institute of Labor Economics

No 2026017, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper studies how financial incentives shape labor supply decisions among disability insurance (DI) recipients who already combine benefits with part-time work. We exploit a distinctive feature of the Belgian Adapted Work Program, in which DI benefits are progressively withdrawn as earnings increase and the marginal withdrawal rate rises sharply at predefined thresholds. Because participants cannot freely adjust their working hours, this setting allows us to estimate how higher implicit taxation affects transitions out of partial work. Using administrative data and a Regression Kink Design, we find that higher implicit tax rates induce exits in two opposite directions: toward full-time employment and back to full DI. A oneeuro increase in the implicit marginal tax per working day raises the probability of returning to full DI by 3.0 percentage points and of resuming full-time employment by 1.5 percentage points, corresponding to elasticities of 0.84 and 0.85. A simple labor supply framework rationalizes these divergent responses. Our findings show that the financial design of partial-benefit schemes can determine whether partial work serves as a bridge toward full employment or instead leads recipients back to full benefit dependency.

Keywords: Disability insurance; Return-to-work policies; Financial incentives; Regression kink design (search for similar items in EconPapers)
JEL-codes: I13 I38 J14 J22 (search for similar items in EconPapers)
Date: 2026-10-07
New Economics Papers: this item is included in nep-lma, nep-mac and nep-mid
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