Table 4 disaggregates the participation responses by demographics, earnings, and health conditions. Column 1 reports mean earnings for allowed individuals, column 2 for denied individuals, column 3 the difference, and column 4 the standard error. Column 5 reports the IV estimate of allowance on earnings and column 6 the standard error. Table 4 shows that the effect of DI allowance on participation is relatively small for college graduates and those with neoplasms (mostly cancer), mental disorders, and mental retardation, but is larger for high school graduates and those with diabetes. Participation responses are larger in the late 1990s than the early 1990s and early 2000s (recall that participation is measured three years after assignment, so assignment in 1999 refers to participation in 2002), potentially giving evidence that the work disincentive from DI is larger when it is easier to get a job. For most groups, the OLS estimates are very close to the IV estimates. One interesting exception is those with mental disorders. OLS estimates suggest decline in participation of 30.2% in response to allowance, whereas IV suggests a decline of only 19.4%. The low responsiveness of laborsupply of those with mental illness is particularly surprising. Mental health is more difficult to monitor than many other health conditions. As a result, some analysts believe that many who claim mental illness are those who are healthy and would have worked in the absence of benefit allowance (Bound and Burkhauser, 1999). This turns out not to be the case.
This study provides plausibly causal estimates of the effect of public insurance coverage on the employment of non-elderly, non-disabled adults without dependent children (“childless adults”). We use both a regression discontinuity design and propensity score matching differences in differences to take advantage of the sudden imposition of an enrollment cap to compare the laborsupply of enrollees to eligible applicants placed on a waitlist. We find enrollment into public insurance leads to sizable and statistically meaningful reductions in employment up to at least 9 quarters later, though the estimated size of this reduction varies from 2 to 10 percentage points depending upon the model used. In light of these results, policymakers should be prepared for a reduction in laborsupply among childless adults affected by the Medicaid expansion under the Affordable Care Act.
adults is of critical policy importance. Initial Congressional Budget Office projections suggested that the version of the legislation signed into law would have increased coverage by 33 million people by 2019, with Medicaid accounting for about half these gains and low-income childless adults comprising the majority of the Medicaid expansion population (Congressional Budget Office 2012a). While the subsequent Supreme Court decision making the ACA-related Medicaid expansion a state option will certainly reduce the magnitude of the coverage increases, it remains the case that childless adults are projected to gain large-scale eligibility for Medicaid in 2014 (Congressional Budget Office 2012b). In this study, we exploit a recent policy reversal in Wisconsin, during which a major public insurance expansion for adults without dependent children (“childless adults”) was implemented and, several months later, abruptly frozen. Individuals who applied after the program was frozen were placed on a waitlist. Those on the waitlist would only be allowed to enroll in the program once enrollment dropped below the capped level, which did not occur at any time during our study period. We obtain estimates of the causal effect of Medicaid on the laborsupply of childless adults by comparing the labor market
A range of studies have used policy reforms which applied to only a subset of the population to estimate the effect of (less) tighter eligibility criteria or of a reduction (increase) in benefit generosity on laborsupply (see e.g. Autor and Duggan, 2003; Gruber, 2000; Staubli, 2011). Unlike most other studies, I will not look on the impact of a reform on the inflow into DI but on the existing beneficiaries. This paper exploits exogenous variation by a policy reform of the Swiss DI that affected only married individuals. Prior to the reform, married DI beneficiaries had the possibility to additionally request a pension for their spouse. Starting in 2004, new accompanying benefits for spouses were no longer granted. In 2008, all existing benefits for spouses were abolished. Another contribution of this study is to analyze the behavioral response not only of the beneficiary but also of other members of the household. Many decisions in a household - especially on labor force participation - are taken in consideration of all household members and are dependent on total income of the household. I apply a difference-in-differences methodology comparing beneficiaries who started to draw DI benefits just prior to the revision to beneficiaries who started to draw DI benefits just after the revision. I find considerable employment effects for the beneficiary on the extensive as well as the intensive margin. The effects for the spouse are also positive but not statistically significantly different from zero.
It is this problem that our study addresses. Our identification approach matches those who are denied benefits to those who are otherwise similar but are allowed benefits. Our approach compliments the approach of Chen and Van der Klaauw (2008) who exploit the vocational grid. They use the fact that in many cases, an individual aged 54 applying for benefits would be denied, although the same individual at age 55 would be allowed. Our estimated laborsupply effects are similar to Chen and Van der Klaauw (2008). However, we add to their analysis by providing larger sample sizes. This allows for more precise estimates. It also allows us to document how the responsiveness of laborsupply varies with demographics, because we can obtain precise estimates for narrow subgroups.
To test the robustness of our results, we perform the spatial analysis using the values obtained by the QT procedure and the HP filter with λ =100. In the case of the QT procedure, the results show positive spatial dependence both for the whole period and for the two sub-periods. This effect is stronger than before and occurs for the two sets of spatial matrices. If we use the HP filter with λ=100 , the results are quite similar to those obtained with λ=400. The spatial dependence is present both for the entire period and for the two groups of matrixes. The analysis by sub-periods only shows spatial dependence between 1997 and 2015 and for some spatial matrixes. Figures 3 and 4 present the scatter plots of the Global Moran’s I for the HP filter (λ=400), when three Knn matrixes (K=1, 3 and 5) and three ID matrixes (α=1, 2 and 3) are used. The spatial correlation shown in figures 3 and 4 is consistent with the interaction presented in figure 2 and allows us to confirm the presence of the BWE. This corroborates the existence of a “social effect”, which causes that the cyclical sensitivity of the LFP in one territory is influenced by what happens in its neighboring regions. 21
In Charts 5 and 6, the darkest curve (labeled “Wage 97 + TFP + SS,” where SS is an abbreviation for Stolper-Samuelson) subtracts from “Wage 97 + TFP” the computed adverse impact of terms-of- trade changes on the wages of those with low skills in our baseline case. In other words, these darkest curves illustrate what wages for the low-skilled, blue-collar worker and the average blue-collar worker would have been had TFP and the U.S. terms of trade vis-à- vis non-industrialized countries been the only factors affecting wages. As is evident in Charts 5 and 6, the negative relative-price effect almost cancels the positive effect of TFP on real wages, so these two forces together imply that the low-skill wage should have been approximately constant. The gap between the “Wage 97 + TFP + SS” curve and the path of real wages is the part of the wage experi- ence that cannot be explained by changes in TFP and changes in the terms of trade. In our model, this residual reflects the labor-supplyeffect and the productivity effect (but not the relative-price effect) of increased offshoring by American firms.
To evaluate the effect of reforms on federal student loan repayment structure, I ex- plicitly model the federal student loan program. In the model, risk-averse individuals face uncertainty about both schooling accumulation and labor income. These risks sug- gest that the student loan debt repayment structure potentially affects their schooling and subsequent laborsupply decisions. Under the standard repayment plan that existed prior to the 2012 Pay As You Earn plan, individuals are required to repay a fixed amount of student loan debt regardless of their labor market income. This repayment structure implies low levels of consumption during periods when individuals suffer bad income shocks and the expectation of this will affect college choices. The Pay As You Earn plan makes student loan repayments co-move with income, reducing the risk of low consump- tion. Individuals in the model are heterogeneous in family income and SAT scores. I also allow for unobserved permanent heterogeneity in risk aversion, in preferences for schooling and laborsupply, in admissions and schooling accumulation probabilities, in family transfers, and in the initial human capital. Explicitly accounting for unobserved heterogeneity allows for potential selection on unobservables into schooling types.
The second strand of literature is on the added worker effect. Stephens (2002) analyzes wives’ responses before and after their husbands’ job losses to examine life-cycle laborsupply adjust- ments and finds small pre-displacement and large, persistent post-displacement effects. Starr (2014) shows that employment rate of women whose husbands were non-employed rose signif- icantly during the recession from 2007 to 2009, confirming that women did take on additional bread-winning responsibilities to make up for income losses. Other related papers take one further step to examine intra-household insurance through the family laborsupply. Attanasio et al. (2005) explore the role of female laborsupply as an insurance mechanism against idiosyncratic earnings risks within the family and find the added worker effect is greater when the household’s ability to borrow is limited. Similarly, Ortigueira and Siassi (2013) find that intra-family risk sharing has its largest impact among wealth-poor households. While the wealth-rich utilize savings to smooth consumption during unemployment spells, wealth-poor households rely on spousal laborsupply. Shore (2010) argues that these risk-sharing benefits of marriage are countercyclical. Husbands’ and wives’ income changes are more positively correlated during economic expansions, while they are not during bad times. Blundell et al. (2015) and Blundell et al. (2016) examine the insurance from various sources and emphasize the important role played by family laborsupply in self-insuring household consumption against wage shocks. Gorbachev (2016) also concludes that a married woman’s attachment to the labor market affects her family’s ability to smooth unexpected income fluctuations.
The results of our analysis reveal a strong impact of the financial incentives in the Swiss DI system on the labor market decisions of existing DI beneficiaries. Estimations of the discrete ES model reveal a new aspect that could not be captured by the earlier literature that focuses on the simple binary outcome of working versus not working. In particular, we find that individual DI benefit receipt significantly increases the probability of working in a part-time job (ATT: 32%-points), reduces the probability of working full-time (ATT: – 35%-points) but has little or no effect on the probability of staying out of the labor force (ATT: 4%-points) for the average beneficiary. While this suggests that the incentives inherent in DI benefits do not necessarily force beneficiaries out of the labor force, but instead induce a shift in the laborsupply decision from working full-time to part-time, we also find evidence for substantial effect heterogeneity. In particular, by comparing the characteristics of individuals in different quartiles of the ATT distributions, we find that men are more likely to shift their laborsupply from full-time to part-time, whereas women tend to drop out of the labor force. For low-income and very ill individuals we also find a tendency towards dropping out of the labor force, while the middle- to high-income and relatively healthy DI beneficiaries tend to shift their laborsupply from full-time to part-time. These results help to better explain the low DI outflow rates as observed in many OECD countries and may also help to better target policy interventions.
Three key issues are known in the literature to affect a correct estimation of the laborsupply function. First, the wage of non-participants is not observed. One solution is to use a model with only workers. Second, the desired hours of non-participant is also not observed.The common solution is to use To bit procedures to account for the censoring, but the Heckit procedure is preferred given that it does not require creatinga variable for the desirednumber of hours worked. We estimate the labor force participation with Probit, using variables that are available for both participant and non-participants. Even using the Heckit procedure, the offer wage, one of our most important repressors, is missing for individuals that do not work, but we handle this complication by estimating the offer wage for all wives.
However, following Feldstein (1999), public finance economists have been concerned with measuring the combined costs of distortions created by changes to the tax system, including the distortions in factor markets and also the shifting between tax-favored and ordinary (non-tax- favored) spending. The combined effect can be inferred by estimating how taxable income (i.e., earnings from labor and capital less tax-favored spending) responds to changes in tax rates. The empirical evidence on this is carefully reviewed by Saez et al. (2009), for uncompensated price changes, and based on this, Parry and Williams (2010b) estimate an MEB of 0.25, with a plausible range of about 0.10 to 0.40. We use 0.35 to make some allowance for the larger laborsupply response to a compensated price change.
In addition to operator and spouse specific variables, we use farm, location, and time specific variables as explana- tory variables. Farm-specific variables include decoupled and coupled government payments, total farm sales, and an indicator for dairy farms (which are specified due to the labor intensive nature of these farms). Previous studies that have included variables like coupled and decoupled payments, farm size d , specialization [2,16,17,21] and reported significant effects on off-farm laborsupply of operators and spouses. We included location-specific variables such as metro/non-metro and ERS Resource region (Figure 2) as a proxy for local labor market condi- tions. Consistent with previous literature (; Gunter [15,17,26]), we argue that inclusion of such variables cap- tures the local labor market conditions, weather, growing crops and growing seasons which can significantly affect off-farm laborsupply of operators and spouses. For the ERS Resource regions, the Mississippi Portal is used as the reference region in our study. Because we utilize a pooled sample, indicator variables to specify year are included. The reference year in this research is 2006.
While a mature literature finds that DisabilityInsurance (DI) receipt discourages work, the welfare implications of these findings depend on two rarely studied economic quantities: the value that individuals and families place on disability benefits; and the full cost of DI allowances to taxpayers, summing over DI transfer payments, benefit substitution to or from other transfer programs, and induced changes in tax receipts. We comprehensively assess these missing margins in the context of Norway's DI system, drawing on two strengths of the Norwegian environment. First, Norwegian register data allow us to characterize the household impacts and fiscal costs of disabilityreceipt by linking employment, taxation, benefits receipt, and assets at the person and household level. Second, random assignment of DI applicants to Norwegian judges who differ systematically in their leniency allows us to recover the causal effects of DI allowance on individuals at the margin of program entry. Accounting for the total effect of DI allowances on both household laborsupply and net payments across all public transfer programs substantially alters our picture of the consumption benefits and fiscal costs of disabilityreceipt. While DI denial causes a significant drop in household income and consumption on average, it has little impact on income or consumption of married applicants; spousal earnings and benefit substitution entirely offset the loss in DI benefit payments. To develop the welfare implications of these findings, we estimate a structural model of household laborsupply that translates employment decisions of both spouses into revealed preferences for leisure and consumption. We find that the welfare benefit of DI receipt is considerably larger for single and unmarried individuals as compared to married couples, suggesting that it might be efficient to lower replacement rates or impose stricter screening on married applicants.
We study the effect of public health insurance eligibility on laborsupply by exploiting the largest public health insurance disenrollment in the history of the United States. In 2005, approximately 170,000 Tennessee residents abruptly lost public health insurance coverage. Using both across- and within-state variation in exposure to the disenrollment, we estimate large increases in laborsupply, primarily along the extensive margin. The increased employment is concentrated among individuals working at least 20 hours per week and receiving private, employer-provided health insurance. We explore the dynamic effects of the disenrollment and find an immediate increase in job search behavior and a steady rise in both employment and health insurance coverage following the disenrollment. Our results suggest a significant degree of “employment lock” – workers employed primarily in order to secure private health insurance coverage. The results also suggest that the Affordable Care Act – which similarly affects adults not traditionally eligible for public health insurance – may cause large reductions in the laborsupply of low-income adults.
Our structural life-cycle model includes stochastic job offers, involuntary separations, saving opportunities and borrowing constraints, early retirement possibilities, unobserved heterogene- ity in preferences, employment opportunities and wages, and detailed specifications of the tax and transfer systems. Moreover, the modeling approach naturally allows life expectancy and the public pension system to influence the decisions of forward-looking individuals planning for retirement. This methodology is ideally suited to quantifying the effect of life expectancy on behavior and to exploring the consequences of reductions in public pension generosity. By considering the interplay between life expectancy and public pension reform when individuals may adjust employment, retirement and consumption behavior, we expand on previous ap- plications of structural life-cycle models. In particular, our paper builds on several previous structural studies which have used life-cycle models to investigate the effects of public pension systems on laborsupply, retirement and consumption decisions (e.g., Casanova, 2010, French, 2005, French and Jones, 2011, Gustman and Steinmeier, 1986, Gustman and Steinmeier, 2005, Heyma, 2004, Jim´enez-Mart´ın and Sanchez Mart´ın, 2007, Rust and Phelan, 1997, and van der Klaauw and Wolpin, 2008) and on work that developed structural life-cycle models in which in- dividuals choose jointly consumption and laborsupply (e.g., Imai and Keane, 2004, and Keane
A person seeking benefits applies at the cantonal DI office. In a first step, the applicant submits the medical documentation of his condition, as well as his previous earnings records. Caseworkers at the local DI office in collaboration with an interdisciplinary team of medical doctors, specialists and vocational consultants then decide whether a person qualifies for benefits. Whether or not an applicant is eligible for benefits is based on a predefined set of medical and vocational factors such as education and age to assess a persons’ capability to work. Before the 4th revision of the Swiss DI in 2004, the health assessment of the applicant was entirely based on the medical certificates issued by the applicant’s chosen doctor. To standardize and improve the quality of screening, the reform in 2004 introduced several supra-regional medical audit institutions that are authorized to conduct appraisals of benefit claims and to carry out medical examinations. In addition to the medical assessment, a team of vocational consultants evaluates the personal and vocational situation of the applicant. The team has to check for possible reintegration and rehabilitation measures reflecting the guiding principle ”rehabilitation before a pension”. After all the relevant information is gathered, the caseworkers have to decide on each case within 12 months. If the decision is not accepted by the applicant, appeals can be submitted to the cantonal insurance court within 30 days. Further levels of appeal are conducted in Federal Supreme Courts (FSIO, 2013).
Several recent influential studies using aggregate data have suggested that the recent growth in the DI program may account for much, if not all of the employment decline of men with work limitations. At both the national and the state level, Bound and Waidmann (2002) regress the fraction of men out of work with health impairments on the fraction receiving DI, and Autor and Duggan (2003) estimate similar cross-state regressions for the period 1978 to 1998 for high-school drop-outs, who represent a disparate share of those on DI. In both studies, the increase in DI participation appears to have had a major negative effect on employment of men with the highest probability of applying for and receiving DI benefits. In contrast to these analyzes, studies that have used rejected disabilityinsurance applicants to measure the labor market potential of beneficiaries have found that rejected applicants have low earnings and employment rates. Bound (1989) analyzes two samples of denied applicants from the 1970s. Arguing that rejected applicants should be more capable of work than are actual beneficiaries, he argues that their employment rate can be thought of as an upper bound estimate of how much
In contrast to these analyses, studies using rejected disabilityinsurance applicants to measure the labor market potential of DI beneficiaries have found that rejected appli- cants have low earnings and employment rates. Bound (1989) analyzes two samples of denied applicants from the 1970s. Arguing that rejected applicants should be more cap- able of work than are beneficiaries, he posits that their employment rate can be thought of as an upper bound estimate of how much beneficiaries would work had they not applied for DI. He finds an employment rate for denied male applicants of no more than 50 percent. These results have been replicated for the same age category of men (45 years and older) by von Wachter et al. (2011), who use administrative records spanning the period 1978 to 2004. Chen and van der Klaauw (2008) find similar results using data from the Survey of Income and Program Participation (SIPP) covering the 1990s. They exploit a discontinuity in the determination process to estimate the disin- centive effect for a subgroup of applicants whose determination is based on vocational factors 3 . They estimate that the employment rate of these DI beneficiaries would have been only 20 percent higher had they not received benefits. Finally, Maestas et al. (2013) use administrative data on variation in disability determination examiners ’ allow- ance rates to identify the employment prospects for marginal DI awardees. They find that the employment rate for members of this group would have been 28 percentage
We show that the optimal disability bene…t should increase more strongly with previ- ous income than the ordinary retirement bene…t. In this way, the government can provide disabilityinsurance to not only the low-skilled but also to the high-skilled, while at the same time improving the …rst-period labor-supply incentives of the high-skilled. By thus basing second-period transfers on …rst-period earnings, the optimal tax-transfer system involves lifetime taxation rather than annual taxation. In the presence of distortionary labor taxes aimed at redistribution from the high-skilled to the low-skilled, optimal dis- ability insurance is only imperfect. The reason is that imperfect disabilityinsurance encourages young workers to increase their …rst-period earnings by working harder. By raising their laborsupply, workers can improve their insurance against disability because the disability bene…t increases more strongly with previous income than the ordinary retirement bene…t collected by able workers. Our analysis thus shows that full disabilityinsurance is not optimal. Thus, even though the private market could implement full dis- ability insurance (since moral hazard is absent in our model), this would not be optimal because private insurers would fail to internalize the external e¤ects of additional diabil- ity insurance on the base of the redistributive labor tax. The government thus faces an incentive to prevent private insurance companies from fully insuring disability. Indeed, a mix of a public tax-transfer system o¤ering less than full insurance and self insurance through precautionary saving is optimal.