Incapacity Benefits and Employment Policy

Mike Orszag () and Dennis Snower
Additional contact information
Mike Orszag: Towers Watson

No 529, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The paper explores the employment implications of allowing people the opportunity of using a portion of their incapacity benefits to provide employment vouchers for employers that hire them. The analysis indicates that introducing this policy could increase employment, raise the incomes of incapacity benefit recipients, and reduce employers’ labor costs. The analysis explicitly derives the optimal voucher, i.e. the voucher that maximizes employment at no extra budgetary cost. This voucher is shown to depend on the size of incapacity benefits, the separation rate in the absence of the voucher, and the degree of displacement; but it does not depend on the hiring rate. Numerical calculations show the optimal voucher to be large by the standards of many existing employment subsidies.

Keywords: labor force participation; employment policy; incapacity benefits (search for similar items in EconPapers)
JEL-codes: J23 J24 J31 J32 J64 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2002-07
New Economics Papers: this item is included in nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - published in: Labour Economics, 2002, 9 (5), 631-641

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Journal Article: Incapacity benefits and employment policy (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp529

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