Disability Insurance Benefits and Labor Supply Choices: Evidence from a Discontinuity in Benefit Awards

Tobias Müller and Stefan Boes

MPRA Paper from University Library of Munich, Germany

Abstract: This paper explores the effects of disability insurance (DI) benefits on the labor market decision of existing DI beneficiaries using a fuzzy regression discontinuity (RD) design. We identify the effect of DI benefits on the decision of working full-time, part-time or staying out of the labor force by exploiting a discontinuity in the DI benefit award rate above the age of 55. Overall, our results suggest that the Swiss DI system creates substantial lock-in effects which heavily influence the labor supply decision of existing beneficiaries: the benefit receipt increases the probability of working part-time by about 41%-points, decreases the probability of working full-time by about 42%-points but has little or no effects on the probability of staying out of the labor force for the average beneficiary. Therefore, DI benefits induce a shift in the labor supply of existing beneficiaries in the sense that they reduce their work intensity from working full-time to part-time which adds a possible explanation for the low DI outflow observed all across the OECD.

Keywords: Disability insurance benefits; Labor market participation; Fuzzy regression discontinuity design Endogenous switching models; Maximum simulated likelihood (search for similar items in EconPapers)
JEL-codes: C35 C36 J22 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-eur, nep-ias, nep-lma, nep-pbe and nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:70957

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