Incapacity Benefits and Employment Policy
J. Michael Orszag
Towers Watson - Reigate (Surrey Office); Institute for the Study of Labor (IZA)
Dennis J. Snower
University of Kiel - Institute for World Economics (IfW); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)
IZA Discussion Paper No. 529
The paper explores the employment implications of allowing people the opportunity of using a portion of their incapacity benefits to provide employment vouchers for employers that hire them. The analysis indicates that introducing this policy could increase employment, raise the incomes of incapacity benefit recipients, and reduce employers' labor costs. The analysis explicitly derives the optimal voucher, i.e. the voucher that maximizes employment at no extra budgetary cost. This voucher is shown to depend on the size of incapacity benefits, the separation rate in the absence of the voucher, and the degree of displacement; but it does not depend on the hiring rate. Numerical calculations show the optimal voucher to be large by the standards of many existing employment subsidies.
Number of Pages in PDF File: 17
Keywords: Incapacity Benefits, Employment Policy, Labor Force Participation
JEL Classification: J23, J24, J31, J32, J64working papers series
Date posted: August 14, 2002
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 1.485 seconds