Research

We provide novel evidence on the trade-off between insurance and incentives when adjusting disability insurance (DI) benefit generosity using a comprehensive measure that encompasses not only the effect on take-up but also behavioral responses of DI recipients with respect to employment and exit from DI. Based on administrative data from the German pension insurance and exogenous policy variation, we identify the relevant behavioral margins induced by a change in benefit generosity. Using a theoretical framework, we show that our comprehensive measure of incentive effects implies a fiscal multiplier of 1.83. Incorporating elasticities with respect to exit from DI increases the fiscal multiplier compared to estimates that only account for take-up elasticities. In the context of the model, we estimate that increasing benefits is welfare improving, given the insurance effects of DI benefits estimated in previous literature.

Work-limiting disabilities pose a substantial risk to the earnings potential and welfare of older workers. While coverage under public disability insurance (DI) systems is nearly universal, the risk of becoming dependent on DI varies across occupations. In this paper, I study the value of public DI across occupations using administrative social security records from Germany. I first examine how a long-term sick leave event (which typically precedes DI take-up) affects the employment trajectories of affected workers. Consistent with previous literature, I find a large decline in employment and earnings across occupation groups. Moreover, those who remain in the labor force are twice as likely to transition between occupations, highlighting health events as an important driver of job transitions among older workers. I then use a structural model to study the relationship between health, occupational choice, disability insurance, and retirement in a life-cycle framework. In counterfactual experiments, I evaluate how adjustments to the DI and retirement system affect labor supply and program take-up across different occupational groups.

We study the importance of financial incentives for disability insurance (DI) benefit take-up of older workers. DI offers important insurance against health-related income risks but can also serve as an early retirement pathway. We use a German policy reform to study the interactions between DI and the unemployment insurance and retirement systems. The reform increased benefits for new recipients by around 13% while leaving eligibility criteria unchanged. Importantly, due to the policy's design, workers can permanently increase their old-age retirement benefits by entering retirement through DI, providing a unique setting to explore the role of financial incentives in DI take-up and program substitution among older workers. We find that the reform led to a significant increase in public DI claims of workers close to retirement. The effect is driven by workers with long contribution histories who have access to early retirement pathways and those in unemployment, suggesting that workers substitute other benefit programs with more generous DI benefits. 

In this paper, we study the role of unemployment insurance (UI) as an early retirement pathway and how institutions shape this channel. We exploit an early retirement reform introduced in Germany in 2014 that lowered the full retirement age for workers with long contribution histories. Crucially, the reform restricted access to this retirement pathway for individuals who received unemployment benefits during the two years prior to reaching the full retirement age, thereby altering the interaction between UI and the pension systems. Using administrative data on the universe of retirees and a difference-in-differences design, we analyze behavioral responses to the reform. We find that UI benefit receipt before retirement declined substantially by 34-48% among post-reform cohorts relative to pre-reform cohorts. These reductions are driven by both lower entry into UI and shorter benefit durations. Heterogeneity analyses reveal weaker effects for the first post-reform cohort and stronger reductions among workers in demanding and manual occupations. We also document behavioral responses exploiting a legislative loophole that allows individuals to accrue contributory periods while unemployed: the share of individuals combining marginal employment with UI spells before retirement rises by 150-250%. Overall, our findings suggest that program substitution rather than complementarity drives the decline in UI receipt, implying that higher pension expenditures may partially offset savings in UI spending.