Earnings Responses to Disability Benefit Cuts

63 Pages Posted: 2 Apr 2018  

Silvia Garcia Mandico

Erasmus University Rotterdam (EUR)

Pilar Garcia-Gomez

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Anne C. Gielen

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

Owen O'Donnell

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

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Abstract

Using Dutch administrative data, we assess the work and earnings capacity of disability insurance (DI) recipients by estimating employment and earnings responses to benefit cuts. Reassessment of DI entitlement under more stringent criteria removed 14.4 percent of recipients from the program and reduced benefits by 20 percent, on average. In response, employment increased by 6.7 points and earnings rose by 18 percent. Recipients were able to increase earnings by €0.64 for each €1 of DI income lost. Female and younger recipients, as well as those with more subjectively defined disabilities, were able to increase earnings most. The earnings response declined as claim duration lengthened, suggesting that earnings capacity deteriorates while on DI. The deterioration was steepest for male, younger and fully disabled recipients. Working while claiming partial disability benefits appears to slow the deterioration of earnings capacity.

Keywords: disability insurance, health, employment, earnings

JEL Classification: H53, H55, J14, J22

Suggested Citation

Garcia Mandico, Silvia and Garcia-Gomez, Pilar and Gielen, Anne C. and O'Donnell, Owen, Earnings Responses to Disability Benefit Cuts. IZA Discussion Paper No. 11410. Available at SSRN: https://ssrn.com/abstract=3153374

Silvia Garcia Mandico (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Pilar Garcia Gomez

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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

Owen O'Donnell

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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