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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.
Authors

Head of Institute for Labor Economics, Department of Economics, Vienna University Vienna University

Research Associate World Bank
Daniel is an economist at the World Bank. His research covers topics in public finance, including social insurance, taxation, and inequality.

Judit Krekó
Working Paper details
- DOI
- 10.1920/wp.ifs.2022.2022
- Publisher
- Institute for Fiscal Studies
Suggested citation
J, Kreko and D, Prinz and A, Weber. (2022). Take-up and labour supply responses to disability insurance earnings limits. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/take-and-labour-supply-responses-disability-insurance-earnings-limits (accessed: 15 February 2025).
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