Working Paper: NBER ID: w18261
Authors: Lex Borghans; Anne C. Gielen; Erzo F.P. Luttmer
Abstract: In this paper, we exploit a cohort discontinuity in the stringency of the 1993 Dutch disability reforms to obtain causal estimates of the effects of decreased generosity of disability insurance (DI) on behavior of existing DI recipients. We find evidence of substantial "social support substitution": individuals on average offset a euro of lost DI benefits by collecting 31 cents more from other social assistance programs. This benefit-substitution effect declines somewhat over time, but is still a significant 20% eight years later. Individuals also exhibit a strong rebound in earnings: labor earnings increase by 62 cents on average per euro of lost DI benefits. This is novel evidence of substantial remaining earnings capacity in a sample of long-term claimants of DI. On average, individuals make up for almost the entire DI benefit reduction through increases in other forms of social assistance and in labor earnings.
Keywords: disability insurance; social assistance; labor supply; regression discontinuity
JEL Codes: H53; I38; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| benefits-substitution effect (D11) | labor earnings increase (J39) |
| 1993 Dutch disability insurance reform (J14) | benefits-substitution effect (D11) |
| 1993 Dutch disability insurance reform (J14) | labor earnings increase (J39) |
| 1993 Dutch disability insurance reform (J14) | social support substitution (Z13) |
| benefits-substitution effect over time (D15) | benefits-substitution ratio (J32) |
| labor earnings increase over time (J39) | earnings crowd-out ratio (E25) |
| 1993 Dutch disability insurance reform (J14) | offset of disability benefits (J32) |