We exploit a cohort discontinuity in the stringency of Dutch disability
reforms to estimate the effects of decreased DI (disability insurance)
generosity on behavior of existing recipients. We find evidence of
social support substitution: individuals on average offset €1.00 of
lost DI benefits by collecting €0.30 more from other social assistance
programs, but this benefit-substitution effect declines over time.
Individuals also exhibit a rebound in earnings: earnings increase by
€0.62 on average per euro of lost DI benefits and this effect remains
roughly constant over time. This is strong evidence of substantial
remaining earnings capacity among long-term claimants of DI.
Borghans, Lex, Anne C. Gielen, and Erzo F. P. Luttmer.
"Social Support Substitution and the Earnings Rebound: Evidence from a Regression Discontinuity in Disability Insurance Reform."
American Economic Journal: Economic Policy,
Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs
Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination
Time Allocation and Labor Supply
Safety; Job Satisfaction; Related Public Policy
Wage Level and Structure; Wage Differentials