Disability benefits, replacement ratios and the labour market. A time series approach

Abstract

In this paper, a study of factors affecting the number of disability beneficiaries in Norway is presented. Equations determining entry rates into the disability benefit system are estimated using aggregated time series data grouped by sex and age. Unemployment is found to influence disability entry. The results regarding effects of the replacement ratio are ambiguous. A model determining the number of beneficiaries, including the estimated entry equations is presented. The model is used to simulate the effect of counterfactual changes in exogenous variables on the number of disability beneficiaries.

To what extent have relaxed eligibility requirements and increased generosity of disability benefits acted as disincentives for employment? A systematic review of evidence from countries with well-developed welfare systems

“…35 This investigated the effect of changes in the replacement rate in the Norwegian disability insurance scheme between 1971 and 1991. Over this period, average replacement rates rose in the late 1970s and were unchanged or declined slightly during the 1980s 35. The study found no significant relationship between the replacement rate and the numbers of people claiming disability benefits.…”

“…The number of people on disability benefits was found to be strongly positively associated with the level of unemployment on a regional level in the UK and a national level in Norway 35 40. Three studies from the UK and Canada report that the low wages in available jobs were a more important predictor of decreased employment than the level of disability benefits 38 41 42.…”

“…Three out of the 16 studies reviewed did not control for labour market conditions in their analysis 36 37 41 42. Seven studies used aggregate (ecological) data in which individual characteristics cannot be adequately controlled for 35 39–42 46 47. Even those studies using individual data often lacked sufficient controls for important individual confounders such as educational level, occupation, health status or wages.…”

“…Bertrand et al 52 demonstrate that this issue could result in difference-in-difference studies reporting a significant effect 45% of the time when in fact there is no effect. Seven of the studies in this review35 37 38 40–42 46 had not adequately taken this issue into account in their analysis. Given the threats to the validity of many of the studies in this review, conclusions are necessarily limited and indicate that there is a lack of evidence from these countries of a high enough quality to determine the extent to which these policies will influence the labour market participation of people with disabilities.…”

Why Have Uk Disability Benefit Rolls Grown So Much?

“…Rapid growth in the number of disability benefit recipients has also occurred elsewhere, particularly in the Netherlands and Scandinavian countries (e.g. see Bowitz, 1997; Bound and Burkhauser, 1999; Jensen, 2003), and also across many other OECD countries (see Marin and Prinz, 2003; Prinz, 2003). In 1999, the UK had the sixth highest disability benefit recipiency rate as a proportion of working age population – at 6.7%– of the OECD countries (see Marin and Prinz, 2003).…”