Estimating the income loss of disabled individuals: the case of Spain

Abstract

In this paper, we present both a theoretical and an empirical model in order to identify the effects of disability on wages. In the theoretical model we assume that the wage gap of a disabled worker depends on a permanent and a transitory productivity gap and the model predicts that the wage gap will be lower after gaining some work experience in the new job. We test this theoretical hypothesis using an exogenous disability shock and matching methods associated with treatment effect techniques for policy evaluation. In all our specifications, we find that the reduction of the wage for the disabled is between 293 and 342 euros per month expressed in constant terms at 2010 prices (21-24% of the average wage of disabled workers) but this reduction is more than offset when we take into account both the disability benefits and the wage. As predicted in the theoretical model, we observe that the pay gap between the disabled and the non-disabled individuals falls over time once the transitory drop in productivity disappears. However, we observe a constant wage gap that remains over time and that corresponds to the permanent fall in productivity predicted by the theoretical model.

Wage subsidies targeted to jobseekers with disabilities: subsequent employment and disability retirement

“…Lechner and Vazquez-Alvarez (2011) use matching methods and the exact timing of when workers in Germany become disabled in legal terms, and report that the probability of working is almost 10 percent higher among those without disabilities, and that the earnings differential is about 16 percent. Similarly, Cervini-Plá et al (2016) estimate the income loss of individuals in Spain who become disabled due to an exogenous disability shock, and find substantial negative short and long-term effects. 3 See Baert (2016) and Deuchert and Kauer (2017) for recent empirical evidence.…”

Partial Disability System and Labor Market Adjustment: The Case of Spain

“…Besides the aforementioned work by Silva and Vall-Castello (2012), we have found no literature that studies the job search process of disabled individuals. There is also no literature that analyzes the matching problems in the labor market for individuals with disabilities through the use of structural models.…”

“…In particular, a job filled with nondisabled workers produces , whereas with a partial disability in continuing jobs produces (1 − ) , where (1 − ) is the "permanent" productivity gap between disabled and nondisabled individuals. 9 Following Cervini-Plá, Silva, and Vall-Castello (2012), we also assume that the productivity gap in new job positions includes a temporary component, , which is related to the assimilation costs of working in a different job or professional activity. This temporary gap component disappears after a certain period spent working in the new job.…”

“…Cervini-Plá, Silva, and Vall-Castello (2012) estimate an average wage gap of 21 percent between a disabled and nondisabled individual, = 1.21.…”

The earnings and employment losses before entering the disability system

“…Those papers have clearly established a negative causal effect of benefit receipt on labour force participation (Bound, 1989;Von Wachter, Song and Machester, 2011;Maestas, Mullen and Strand, 2013;Chen and Van Der Klaauw, 2008;Marie and Vall-Castello, 2012;French and Song, 2014). For the Spanish case, Cervini et al (2012) find that individuals receiving disability benefits in Spain earn around 293-342 Euros/month less than similar individuals without a disability.…”