Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 2/18: Economic incentives, disability insurance and labor supply

Ragnar Hjellset Alne ()
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Ragnar Hjellset Alne: University of Bergen, Department of Economics, Postal: Institutt for √łkonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway

Abstract: Using a difference-in-difference model on full population data, I estimate the labor market response to a 2015 Norwegian disability insurance (DI) reform. The reform introduced an incentive program to encourage DI beneficiaries to increase their labor supply, and I find that the program significantly increased the average working hours and modestly affected the labor market participation of DI beneficiaries. There is significant heterogeneity in the estimated effects; young beneficiaries respond positively along the extensive and the intensive labor supply margins. The analysis accentuates the importance of analyzing both labor supply margins when evaluating the effects of DI reforms.

Keywords: Disability insurance reform; labor supply; economic incentives; difference-in-difference; labor economics

JEL-codes: D60; H53; I38; J08; J22

48 pages, First version: June 14, 2018. Revised: June 14, 2018.

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