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Disability Insurance and the Effects of Return-to-Work Policies

Chiara Dal Bianco ()

No pj8d9, SocArXiv from Center for Open Science

Abstract: I provide a quantitative assessment of the labor market and welfare effects of return- to-work policies targeted at disability insurance (DI) recipients by estimating a life- cycle model in which individuals with different health evolving over time choose con- sumption, labor supply, and DI application. I find that a wage subsidy incentivizing return to work is welfare improving, and the willingness to pay for such reform is in- creasing in sickness and decreasing in wealth. This policy increases labor force par- ticipation of DI beneficiaries by 3.6 percentage points, and decreases the DI rate by 4.6 percentage points. A policy mandating yearly eligibility reassessment with a 10% probability would decrease the welfare of individuals in bad health and worse economic condition, and force about 30% of the beneficiaries to exit the program, 56% of whom would return to work.

Date: 2022-06-15
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DOI: 10.31219/

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