Occupational hazards and social disability insurance

Abstract

Using retrospective data, we introduce evidence that occupational exposure significantly affects disability risk. Incorporating this into a general equilibrium model, social disability insurance (SDI) affects welfare through (i) the classic, risk-sharing channel and (ii) a new channel of occupational reallocation. Both channels can increase welfare, but at the optimal SDI they are at odds. Welfare gains from additional risk-sharing are reduced by overly incentivizing workers to choose risky occupations. In a calibration, optimal SDI increases welfare by 2.3% relative to actuarially fair insurance, mostly due to risk sharing.

Estimating the Moral Hazard Cost of Private Disability Insurance and its Welfare Consequences

“…I complement their work by discussing the interaction between public and private DI for alternative public DI schedules and how it translates into welfare-improving public DI policies. More broadly, my paper is related to the literature which studies how public DI compensates individuals for working in high-risk jobs (Jacobs, 2020;Michaud and Wiczer, 2018); the incentive effects of public DI on earnings and employment (e.g. Autor et al (2019), Gelber et al (2017), Meyer and Mok (2019), Mullen and Staubli (2016), and Ruh and Staubli (2019)), and the productivity of (rejected) claimants (e.g.…”

“…As discussed in section 2, insurance companies map occupations into discrete risk groups, which capture risk heterogeneity, but also correlates with income, so I add risk heterogeneity as an additional state to my model (see alsoMichaud and Wiczer (2018)). …”