The Effect of Disability on Labour Market Outcomes in Germany: Evidence from Matching

Abstract

If labour market policies aimed at people with disabilities are effective, we should observe no significant difference in labour market outcomes between disabled and non-disabled individuals. This Paper examines the impact of disability status on labour market outcomes using matching methods associated with treatment effect techniques for programme evaluation. Such techniques are fairly robust with respect to model misspecification and account for the common support problem, thus improving the identification and estimation strategy. Using the German Socio-Economic Panel (1984-2001), we estimate the impact of disability on labour market participation and different income measures. We find that those who are not disabled experience higher employment rates and higher earnings relative to those who have become disabled. This difference is almost always significant for all labour market outcomes considered.

Keywords: Treatment effect, evaluation of disability policies, health status, causality, matching on the propensity score, labour market outcomes

JEL Classification: C13, C14, I12, I18, J23