Working Paper: NBER ID: w19016
Authors: Andreas Ravndal Kostl; Magne Mogstad
Abstract: Disability Insurance (DI) programs have long been criticized by economists for apparent work disincentives. Some countries have recently modified their programs such that DI recipients are allowed to keep some of their benefits if they return to work, and other countries are considering similar return-to-work policies. However, there is little empirical evidence of the effectiveness of programs that incentivize the return to work by DI recipients. Using a local randomized experiment that arises from a sharp discontinuity in DI policy in Norway, we provide transparent and credible identification of how financial incentives induce DI recipients to return to work. We find that many DI recipients have considerable capacity to work that can be effectively induced by providing financial work incentives. We further show that providing work incentives to DI recipients may both increase their disposable income and reduce program costs. Our findings also suggest that targeted policies may be the most effective in encouraging DI recipients to return to work.
Keywords: Disability Insurance; Return to Work; Financial Incentives
JEL Codes: H53; H55; I18; J21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| return-to-work program (J68) | labor force participation (J22) |
| return-to-work program (J68) | average earnings (J31) |
| return-to-work program (J68) | disposable income (D10) |
| return-to-work program (J68) | program costs (I22) |
| return-to-work program (J68) | tax contributions (H29) |
| financial incentives (M52) | responsiveness to financial incentives (M52) |
| return-to-work program (J68) | exit rate from DI program (J65) |
| return-to-work program (J68) | impact on older recipients (J14) |