Earnings Capacity of Disability Insurance Claimants, with Pilar García-Gómez, Anne Gielen and Owen O'Donnell.

Abstract: Determining the earnings capacity of benefit recipients is critical to the operation and evaluation of disability insurance (DI) programs. We use administrative data on the universe of Dutch DI recipients and reassessment of their benefit entitlement under more stringent rules to estimate earnings capacity they could be induced to utilize. We estimate that the increased stringency removed 17 percent from the program and reduced the amount of benefit received by 20 percent, on average. In response, employment increased by 20 percent and earnings rose by 18 percent. Recipients were able to increase earnings by 636 euros for each 1,000 euros of DI income lost. In line with the intuition that moral hazard might be larger among them, this earnings response was largest from those with more subjectively defined disabilities (mental health and musculoskeletal conditions), as well as female and younger recipients. Consistent with earnings capacity deteriorating with claim duration, reassessment had the least impact on the benefits and earnings of those who had been claiming DI for longest. Working while claiming partial disability benefits may slow the deterioration of earnings capacity.

Working Papers

The Impact of Social Insurance on Spousal Labor Supply: Evidence from Cuts to Disability Benefits in the Netherlands, with Pilar García-Gómez and Owen O'Donnell.

Abstract: Spousal labor supply is a key insurance channel available to partnered individuals. Despite this, most investigations of the effect of disability insurance (DI) benefits generosity have focused only on the directly affected individual and ignored the potential impact of the program on the other family members. This paper studies this possibility more carefully by quantifying the magnitude of spousal labor supply responses to a reform that reduced DI generosity. We show that for every 1,000 euros cut from disability payments, spouses increased their annual earnings by 334 euros. Employment responses are concentrated among husbands of female disability beneficiaries, who were employed before the start of the reform. Differential spouses' responses shape the capacity of households to recover the income lost from disability benefit cuts by increasing their labor supply, highlighting the importance of intra-households spillovers from the provision of benefits.

Spillovers in Pension Incentives and the Joint Retirement Behavior of Spanish Couples, with Sergi Jiménez-Martín.

Abstract: This paper explores how husbands’ and wives’ retirement behavior is influenced by their own financial incentives from Social Security and private pensions and by “spillover effects” from their spouses’ incentives. Spillover effects are possible due to income effects and complementarity of leisure; if significant, their omission will bias estimates of the effect of changing Social Security policy on retirement. We estimate reduced-form models and document a number of key results. First, married men are more responsive to their own incentives than married women: a 10 percentage point higher marginal tax on working is associated to a 0.9% increase in the baseline probability to exit the labor force for men and a 0.1% for women. Second, men are very responsive to their wives’ financial incentives but that women are not responsive to their husbands’ incentives. Policy simulations indicate that estimates of the effect of a policy change on the probability of men working at age 65 are biased by 10% if spillover effects are omitted.

Does public health insurance cushion the impact of health shocks? with Arndt Reichert and Christoph Strupat

Abstract: We use the roll-out of universal health insurance in Ghana to assess the effect of coverage on consumption at times of illness, and examine the extent to which formal health insurance reduces reliance on loans and remittances, as well as reductions on schooling and increases in child labor to cope with the economic impact of ill-health. Our results suggest that the introduction of the national health insurance may have reduced the need for the latter. In particular, we find suggestive evidence that with health insurance, households experiencing a health shock are more likely to refrain from pulling their children out of school to put them to work. Avoidance of these costly self-insurance mechanisms is potentially an important part of the social value of formal health insurance.

Book Chapters

Trends in Employment and Social Security Incentives in the Spanish Pension System: 1980-2016, with Pilar García-Gómez, Sergi Jiménez-Martín and Judit Vall-Castelló. Forthcoming in "Social Security Programs and Retirement around the World: Reforms and Retirement Incentives," edited by Axel Börsch-Supan and Courtney Coile