Social Support Substitution and the Earnings Rebound: Evidence from a Regression Discontinuity in Disability Insurance Reform

56 Pages Posted: 3 Jan 2011

See all articles by Lex Borghans

Lex Borghans

Maastricht University - Department of Economics; University of Maastricht - Research Centre for Education and the Labour Market (ROA); IZA Institute of Labor Economics

Anne C. Gielen

Institute for the Study of Labor (IZA); Maastricht University

Erzo F. P. Luttmer

Dartmouth College; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Abstract

In this paper, we exploit a cohort discontinuity in the stringency of the 1993 Dutch disability reforms to obtain causal estimates of the effects of decreased generosity of disability insurance (DI) on behavior of existing DI recipients. We find evidence of substantial “social support substitution”: individuals on average offset a euro of lost DI benefits by collecting 31 cents more from other social assistance programs. This benefit-substitution effect declines somewhat over time, but is still a significant 20% eight years later. Individuals also exhibit a strong rebound in earnings: labor earnings increase by 62 cents on average per euro of lost DI benefits. This is novel evidence of substantial remaining earnings capacity in a sample of long-term claimants of DI. On average, individuals make up for almost the entire DI benefit reduction through increases in other forms of social assistance and in labor earnings.

Keywords: crowd out, spillover effects, benefit substitution, social insurance, income assistance, welfare, regression discontinuity, administrative data

JEL Classification: H53, J22, I38

Suggested Citation

Borghans, Lex and Gielen, Anne C. and Luttmer, Erzo F.P., Social Support Substitution and the Earnings Rebound: Evidence from a Regression Discontinuity in Disability Insurance Reform. IZA Discussion Paper No. 5412, Available at SSRN: https://ssrn.com/abstract=1733737

Lex Borghans (Contact Author)

Maastricht University - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

University of Maastricht - Research Centre for Education and the Labour Market (ROA) ( email )

P.O. Box 616
Maastricht, MD6200
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Anne C. Gielen

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands
+31 43 3883887 (Phone)
+31 43 3881450 (Fax)

HOME PAGE: http://www.annegielen.nl

Erzo F.P. Luttmer

Dartmouth College ( email )

Department of Economics
Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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