Abstract
Many OECD countries are facing decreases in the employment rates of disabled workers. To uncover the driving forces of these trends, this paper estimates Age-Period- Cohort (APC) models on administrative data of Disability Insurance (DI) application cohorts for the Netherlands between 1999 and 2013. Our main finding is that the substantial decrease in employment rates of applicant cohorts in this time period is almost fully explained by cohort effects – equalling about 30 percentage points – and that the impact of period effects is only small. In turn, cohort effects stem from changes in the observed composition of applicants, with increasing shares of workers without (permanent) contracts in the year before the application. These changes are largely confined to years following two major DI reforms that increased self-screening among potential applicants. We also expand the APC model by allowing for distinct effects for awarded and rejected DI applicants. Assuming common compositional cohort effects for these two groups, difference-in-difference estimates of cohort effects indicate that the effect of changes in benefit conditions ('incentive effects') is limited. Disability reforms thus predominantly affected the stringency of the DI system and induced substantial self-screening in the sickness period before the DI decision, rather than changing individual employment rates.
Highlights
Over the last decades, many OECD countries have shown declining employment rates of disabled individuals (OECD 2010)
Using a Deaton–Paxson (DP) specification, we first disentangle application cohort effects from period and age effects. These application cohort effects represent the joint effect of: (i) compositional changes induced by secular cohort-specific time trends in the demand for and health conditions of the insured population of workers with disabilities; (ii) compositional changes induced by disability reforms that affected self-screening before application; and (iii) individual changes in the employment rate of awarded applicants – or: ‘incentive effects’ – induced by cohort-specific changes in benefit conditions
Following from Eq (1), our primary focus is on the APC-DP model as a benchmark; the respective results are indicated by the black, solid lines
Summary
Many OECD countries have shown declining employment rates of disabled individuals (OECD 2010). Since the mid-eighties, the expansion of the SSDI program coincided with higher fractions of applicants with weak labor market positions for whom the receipt of benefits has discouraged them from working This means that overall decline in employment among SSDI recipients can be attributed both to changes in the composition of applicants – with vulnerable labor market positions – and a lack of work incentives for those awarded benefits. This raises two fundamental questions that are inherent with the design of Disability Insurance (DI) schemes.
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