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ABSTRACTAlthough partially disabled individuals in Spain are allowed to combine the receipt of disability benefits with a job, the empirical evidence shows that employment rates for this group of individuals are very low. Therefore, in this paper we construct labor market model with search intensity and matching frictions in order to identify the incentives and disincentives to work provided by the partial disability system in Spain from the point of view of both disabled individuals and employers. According to the model, the high employment rate gap observed between nondisabled and disabled workers can be partially explained by the presence of a lower level of productivity and higher searching costs among disabled individuals that discourage them from looking for jobs. Moreover, the design of the Spanish Disability System also contributes in explaining this gap. We also analyze the role of business cycle conditions in shaping the labor market transitions of disabled individuals.
JEL Classification Codes: I18, J64, J68Key Words: disability system, job search intensity, flow analysis.
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Partial Disability System and Labor Market Adjustment: The Case of SpainIn recent years, disability policies have attracted particular attention in OECD countries because they represent an important source of public spending and also because societies are increasingly concerned about the need to strengthen the integration of people with disabilities.For these reasons, the possibility of increasing the number of disabled individuals who work is regarded as a good strategy to decrease the pressures on the financial stability of the social security systems as well as to achieve the social integration of people with disabilities. As the OECD notes, "Helping (disabled) people to work is potentially a 'win-win' policy: it helps people avoid exclusion and have higher incomes while raising the prospect of more effective labor supply and higher economic output in the long term" (OECD 2007).The promotion of the employment of disabled individuals is particularly relevant in Spain, where partially disabled individuals are allowed to combine the receipt of (part) of the disability benefits with a job without any limit on the maximum wage or number of hours worked. Nonetheless, the country reported an average employment rate of just 11 percent for the group of people with partial disability from 2001 to 2011, which contrasts with the observed rate...