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Labor Market Screening and Social Insurance Program Design for the Disabled

Naoki Aizawa, Soojin Kim and Serena Rhee

No 27478, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the optimal design of social insurance programs for disabled workers by developing and estimating an equilibrium labor search model with screening contracts. In the model, firms may strategically use employment contracts, consisting of wage and job amenities, to screen out the disabled. The optimal structure of disability policies depends on firms' screening incentives, which may distort employment rates and contracts. By exploiting policy changes on the labor demand side for the disabled in the United States, we identify and estimate our equilibrium model to explore the optimal joint design of disability policies, including disability insurance (DI) and subsidies to firms accommodating disabled workers. We find that firm subsidies mitigate screening distortions; at the same time, they interact with DI by reducing the labor supply disincentives it generates. The optimal policy structure leads to a considerable welfare gain by simultaneously making firm subsidies and DI benefits more generous.

JEL-codes: E61 H21 H51 I18 J32 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-cta, nep-dge, nep-hea, nep-ias and nep-lma
Note: HC LS PE
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Working Paper: Labor Market Screening and Social Insurance Program Design for the Disabled (2019)
Working Paper: Labor Market Screening and Social Insurance Program Design for the Disabled (2018) Downloads
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