Hidden unemployment in disability insurance

We estimate the fraction of hidden unemployment in the disability insurance (DI) inflow rate on the basis of a longitudinal administrative data set of Dutch employers for the period 1994-2003. This fraction can be identified by imposing so-called exclusion restrictions on variables that are thought to impact the layoff rate but not disability risk. We find that the fraction of hidden unemployment in DI inflow amounts to 11 per cent. This implies that 2.6 per cent of all layoffs took place via the DI scheme. In addition, we find that this share has declined substantially over time, suggesting that various policy measures taken have been effective.