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IZA Discussion Paper No. 15377
June 2022
Take-up and Labor Supply Responses to Disability Insurance Earnings Limits

published in: Labour Economics, 2024, 89, 102583

In most disability insurance programs beneficiaries lose some or all of their benefits if they earn above an earnings threshold. While intended to screen out applicants with high remaining working capacity, earnings limits can also distort the labor supply of beneficiaries. We develop a simple framework to evaluate this trade-off. We use a reduction in the earnings limit in Hungary to examine screening and labor supply responses. We find that the policy changed selection into the program modestly but reduced labor supply significantly. Viewed through the lens of our model, these findings suggest that the earnings threshold should be higher.

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Mark Fallak
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+352 585-855-526
World of Labour
Olga Nottmeyer
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+352 585-855-501
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Christina Gathmann
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