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Measuring the (Income) Effect of Disability Insurance Generosity on Labour Market Participation

Olivier Marie () and Judit Vall Castello ()

No 12, ROA Research Memorandum from Maastricht University, Research Centre for Education and the Labour Market (ROA)

Abstract: We analyze the employment effect of a law that provides for a 36 percent increasein the generosity of disability insurance (DI) for claimants who are, as a result oftheir lack of skills and of the labour market conditions they face, deemed unlikely tofind a job. The selection process for treatment is therefore conditional on having alow probability of employment, making evaluation of its effect intrinsically difficult.We exploit the fact that the benefit increase is only available to individuals aged 55or older, estimating its impact using a regression discontinuity approach. Our firstresults indicate a large drop in employment for disabled individuals who receive theincrease in the benefit. Testing for the linearity of covariates around the eligibility agethreshold reveals that the age at which individuals start claiming DI is not continuous:the benefit increase appears to accelerate the entry rate of individuals aged 55 or over.We obtain new estimates excluding this group of claimants, and find that the policydecreases the employment probability by 8 percent. We conclude that the observedDI generosity elasticity of 0.22 on labour market participation is mostly due to incomeeffects since benefit receipt is not work contingent in the system studied.

Keywords: labour economics (search for similar items in EconPapers)
Date: 2011
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Related works:
Journal Article: Measuring the (income) effect of disability insurance generosity on labour market participation (2012) Downloads
Working Paper: Measuring the (Income) Effect of Disability Insurance Generosity on Labour Market Participation (2011) Downloads
Working Paper: Measuring the (income) effect of disability insurance generosity on labour market participation (2011) Downloads
Working Paper: Measuring the (income) effect of disability insurance generosity on labour market participation (2011) Downloads
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