How Financial Incentives Induce Disability Insurance Recipients to Return to Work

American Economic Review · 2014 · Volume 104 · Issue 2

Abstract

Using a local randomized experiment that arises from a sharp discontinuity in Disability Insurance (DI) policy in Norway, we provide transparent and credible identification of how financial incentives induce DI recipients to return to work. We find that many DI recipients have considerable capacity to work that can be effectively induced by providing financial work incentives. We further show that providing work incentives to DI recipients may both increase their disposable income and reduce program costs. Our findings also suggest that targeted policies may be the most effective in encouraging DI recipients to return to work.

Keywords

Household Saving, Personal Finance, Social Security and Public Pensions, Economics of the Elderly, Economics of the Handicapped, Non-labor Market Discrimination, Time Allocation and Labor Supply, Safety, Job Satisfaction, Related Public Policy

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