How Financial Incentives Induce Disability Insurance Recipients to Return to Work

Magne Mogstad and Andreas R. Kostøl

American Economic Association

Photo: AEA

Published in:

American Economic Review 2014 104 (2) pp. 624-55.

DOI: 10.1257/aer.104.2.624

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.

 

Published July 15, 2015 1:01 PM - Last modified July 15, 2015 1:01 PM