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American Economic Review: Vol. 104 No. 2 (February 2014)

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How Financial Incentives Induce Disability Insurance Recipients to Return to Work

Article Citation

Kostol, Andreas Ravndal, and Magne Mogstad. 2014. "How Financial Incentives Induce Disability Insurance Recipients to Return to Work." American Economic Review, 104(2): 624-55.

DOI: 10.1257/aer.104.2.624

Abstract

Using a local randomized experiment that arises from a sharp discontinuity in Disability Insurance (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.

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Online Appendix (180.04 KB) | Download Data Set (184.77 KB) | Author Disclosure Statement(s) (75.65 KB)

Authors

Kostol, Andreas Ravndal (Statistics Norway and U Bergen)
Mogstad, Magne (U College London and Statistics Norway)

JEL Classifications

D14: Household Saving; Personal Finance
H55: Social Security and Public Pensions
J14: Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination
J22: Time Allocation and Labor Supply
J28: Safety; Job Satisfaction; Related Public Policy


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