Return-to-Work Policies and Labor Supply in Disability Insurance Programs

Abstract

Return-to-work policies in disability insurance (DI) programs allow beneficiaries to collect a portion of their benefits while working. I investigate whether a large increase in incentives to work in a return-to-work policy could induce benefit recipients to increase their labor supply. I quantify the effects on earnings and labor force participation using a sharp discontinuity in the induced incentives to work at the month of the policy change in a DI program in Canada. Using administrative data, I document that large incentives to work could induce beneficiaries to increase their labor supply both in intensive and extensive margins.