Do disability benefits hinder work resumption after recovery?

Pierre Koning, Paul Muller*, Roger Prudon

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

While a large share of Disability Insurance recipients in OECD countries are expected to recover, outflow rates from temporary disability schemes are typically negligible. We estimate the disincentive effects of disability benefits on the response to a (mental) health improvement using administrative data on all Dutch disability benefit applicants. We compare those below the DI eligibility threshold with those above and find that disincentives significantly reduce work resumption after health improves. Approximately half of the response to recovery is offset by benefits. Estimates from a structural labor supply model suggest that disincentives are substantially larger when the worker's earnings capacity is fully restored.

Original languageEnglish
Article number102593
Pages (from-to)1-23
Number of pages23
JournalJournal of Health Economics
Volume82
Early online date30 Jan 2022
DOIs
Publication statusPublished - Mar 2022

Bibliographical note

Funding Information:
We thank Owen O’Donnell, Maarten Lindeboom and seminar participants at the Vrije Universiteit Amsterdam, University of Amsterdam, Gothenburg University, EEA Congress and EALE conference for useful comments. The authors gratefully acknowledge the financial support from Instituut Gak for this research project, as well as UWV for providing access to their data on DI applications. Results in this paper are based on non-public microdata from Statistics Netherlands (CBS). In principle, part of these microdata are accessible for statistical and scientific research. For further information, contact microdatacbs.nl.

Publisher Copyright:
© 2022 The Author(s)

Keywords

  • Disability insurance
  • Health shocks
  • Labor supply
  • Mental health

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