Labour Supply and Welfare Effects of Disability Insurance: A Survey

Abstract

This paper provides an overview of the labour supply disincentive and the insurance effect of public disability insurance (DI) programmes targeted to permanently disabled adults. It builds on previous survey papers to review the empirical findings on the direction and magnitude of the DI effects on labour market participation. It particularly focuses on the consequences of altering specific parameters of the DI schemes, such as benefit amount, screening stringency and return-to-work incentives. Finally, it surveys the recent literature investigating the level of insurance against work-limiting health impairments provided by DI programmes and the value of DI for beneficiaries. This literature is of particular relevance in a period in which many countries are facing the challenge of reforming DI schemes to guarantee their sustainability.