Disability insurance benefits and labor supply decisions: evidence from a discontinuity in benefit awards

Tobias Müller () and Stefan Boes
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Tobias Müller: University of Bern

Empirical Economics, 2020, vol. 58, issue 5, No 18, 2513-2544

Abstract: Abstract The effect of disability insurance (DI) benefits on the labor supply of individuals is a disputed topic in both academia and policy. We identify the impact of DI benefits on working full-time, working part-time or being out of the labor force by exploiting a discontinuity in the DI benefit award rate in Switzerland above the age of 56. Using rich survey data and a discrete endogenous switching model, we find that DI benefit receipt increases the probability of working part-time by approximately 32% points, decreases the probability of working full-time by approximately 35% points and has little effect on the probability of being out of the labor force for the average beneficiary. Looking at the treatment effect distribution, we find that male, middle- to high-income and relatively healthy DI beneficiaries are more likely to adjust their labor supply from full-time to part-time, whereas women, low-income and ill beneficiaries tend to drop out of the labor market. Our results shed new light on the mechanisms explaining low DI outflow rates and may help better target interventions.

Keywords: Disability insurance; Labor market participation; Fuzzy regression discontinuity design; Discrete endogenous switching models; Maximum simulated likelihood (search for similar items in EconPapers)
JEL-codes: C35 C36 J2 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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Working Paper: Disability Insurance Benefits and Labor Supply Decisions: Evidence from a Discontinuity in Benefit Awards (2016)
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DOI: 10.1007/s00181-018-1587-4

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