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Do Disability Benefits Hinder Work Resumption after Recovery?

Pierre Koning (), Paul Muller () and Roger Prudon ()
Additional contact information
Roger Prudon: Free University Amsterdam

No 13971, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: While a large share of Disability Insurance recipients are expected to recover, outflow rates from temporary disability schemes are typically negligible. We estimate the disincentive effects of disability benefits on the response to a (mental) health improvement using administrative data on all Dutch disability benefit applicants. We compare those below the DI eligibility threshold with those above and find that disincentives significantly reduce work resumption after health improves. Approximately half of the response to recovery is offset by benefits. Structural labor supply model estimates suggest disincentive effects are substantially larger when the workers earnings capacity is fully restored.

Keywords: disability insurance; mental health; labor supply; health shocks (search for similar items in EconPapers)
JEL-codes: I1 J08 J22 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2020-12
New Economics Papers: this item is included in nep-hea, nep-ias and nep-lab
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