We study whether experience rating for disability insurance (DI) affects the labor costs of firms and the probability of bankruptcy. The experience rating requires firms to contribute to the DI benefit costs of their workers. We use matched worker–firm data of the Netherlands, where the DI premium of firms is a function of historic disability risks. To measure the effect of experience-rated premiums, we exploit exogenous changes in the schedule that determines the firms’ DI premiums. We find that higher premiums increase not only labor costs but also the probability of firm bankruptcy. These effects are concentrated on small firms.
Bibliographical noteFunding Information:
Statistics Netherlands and the Employee Insurance Agency are gratefully acknowledged for providing access to the data. This study was sponsored by Instituut Gak. We also thank Jos van Ommeren and three anonymous referees for constructive comments on earlier versions of this paper.
© 2021 The Authors. The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of Föreningen för utgivande av the SJE.
- Disability insurance
- experience rating
- firm exits