The Role of Disability Insurance on the Labour Market Trajectories of Europeans

Agar Brugiavini () and Petru Crudu ()
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Agar Brugiavini: Department of Economics, University Of Venice CÃ Foscari; Institute for Fiscal Studies
Petru Crudu: Department of Economics, University Of Venice CÃ Foscari

No 2023:20, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: This work documents the role played by disability insurance, typically part of a wider public pension provision package, on the labour market trajectories and retirement decisions. We will first employ a machine learning approach to estimate a Transition Probability Model able to uncover the most likely labour market histories and then evaluate the effects of policy reforms, including reforms to the eligibility for disability insurance benefits. The main contribution is the introduction of disability insurance programs within a framework, which models the entire life course of older Europeans. This requires the detailed administrative eligibility criteria prevailing in each of the 11 countries from 1970 to 2017. Results show that the disability route and early retirement are substitutes. In addition, tightening eligibility rules of disability programs crowd out disabled workers, whose reductions in working capacities are correctly assessed, towards other compensatory schemes (e.g., unemployment benefits or early pension) in which working is not expected. On the contrary, individuals with over-assessed reductions in working capacities are the most reactive to disability policy restrictions. In conclusion, efficient disability assessment procedures are crucial for incentivising labour market participation without hurting individuals most in need.

Keywords: Retirement; Disability; Path Dependence; Simulation (search for similar items in EconPapers)
JEL-codes: H55 I38 J14 J26 (search for similar items in EconPapers)
Pages: 83 pages
Date: 2023
New Economics Papers: this item is included in nep-age, nep-cmp, nep-eec, nep-hea, nep-lab and nep-pbe
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