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Take-up and Labor Supply Responses to Disability Insurance Earnings Limits

Judit Krekó (), Daniel Prinz () and Andrea Weber ()
Additional contact information
Judit Krekó: Budapest Institute
Andrea Weber: Central European University

No 15377, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In most disability insurance programs beneficiaries lose some or all of their benefits if they earn above an earnings threshold. While intended to screen out applicants with high remaining working capacity, earnings limits can also distort the labor supply of beneficiaries. We develop a simple framework to evaluate this trade-off. We use a reduction in the earnings limit in Hungary to examine screening and labor supply responses. We find that the policy changed selection into the program modestly but reduced labor supply significantly. Viewed through the lens of our model, these findings suggest that the earnings threshold should be higher.

Keywords: disability insurance; policy reform; earnings limit; labor supply (search for similar items in EconPapers)
JEL-codes: H53 H55 I38 J22 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2022-06
New Economics Papers: this item is included in nep-hea and nep-lma
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