In most industrialized countries the fraction of individuals receiving disability insurance (DI) benefits has grown substantially during the last decades. The rapid expansion in DI receipt puts enormous financial pressure on public pension systems and makes significant changes to DI program inevitable. Many of the proposed interventions to DI programs focus on encouraging DI recipients to leave the rolls and return to work. To assess the effectiveness of these policy measures to decrease beneficiary numbers more empirical evidence is needed. This project's primary aim is to understand the consequences of changing the generosity of disability benefits on the labor supply of DI recipients.
A second aim i s to estimate the spillover effect in the labor supply response of changes in disability benefits on DI recipients'spouse and children.
A third aim i s to analyze the impact of changes in benefit generosity on entry into disability insurance programs.
A fourth aim i s to explore heterogeneity in the effects across subgroups of DI beneficiaries. To study these questions, the project proposes to combine exceptionally rich administrative data with policy variation from two policy reforms to the DI program in Switzerland. The administrative data contain detailed information on labor market and earnings histories of 25 percent of employees and 50 percent of DI recipients in Switzerland over the period 1982-2011. Given the similarity in the structure of the DI program and the characteristics of DI beneficiaries to those of other industrialized countries, our results can yield important insights to guide disability insurance reforms in several other countries, including the United States. The project proposes to use three different research designs that exploit the quasi-experimental variation in disability benefits. The first approach will rely on a reform that changed disability benefits for DI recipiens with a reduction in work capacity of 60-70 percent (treated group), while recipients with work capacity reductions of 50-60 percent and above 70 percent were not affected (control groups). Thus, the impact of benefit generosity on return-to-work and program exit can be estimated by comparing the labor supply behavior of these two groups before and after the reform. The second approach exploits a reduction in disability benefits for married DI recipients who entered the rolls before 2004. More precisely, we compare married DI recipients who entered the DI rolls before 2004 (treated group) with those who entered after 2004 (control group) over time. To examine the impact of benefit generosity on program entry, the third approach relies on a reform that reduced disability benefits for all married DI applicants, while leaving the benefits for singe DI applicants unaffected. Hence, we can estimate the impact of benefit generosity on program entry by comparing DI inflow rates of these two groups before and after the reform.
This project uses administrative data from the Swiss Social Security database to study the effect of changes in the generosity of disability benefits on the labor supply of disability insurance recipients and their spouses, as well as on program entry. The findings from this research project can inform the design of a disability insurance program that incentivizes return to work while still providing insurance against income loss.