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  4. The Effect of Disability Insurance Receipt on Labour Supply: a Dynamic Analysis




The Effect of Disability Insurance Receipt on Labour Supply: a Dynamic Analysis




Speaker: Prof. Eric French, Professor of Economics at UCL

Series: City Health Economics Centre Seminar Series

Lunch will be served at 12.45pm.


Eric French is a Professor of Economics at University College London, Co-director, ESRC Centre for the Microeconomic Analysis of Public Policy, Institute for Fiscal Studies, and is a Fellow at the Institute for Fiscal Studies and Centre for Economic Policy Research.  

French's research interests include: household behaviour over the lifecycle; the impact of government and private pensions on savings and labour supply; the impact of health insurance on medical spending, savings, and labour supply; the impact of disability insurance programs on labour supply; the impact of the minimum wage on employment and spending of minimum wage households; and dynamic structural modelling.

French's research has been published in Econometrica, the Review of Economic Studies, American Economic Review, Journal of Political Economy, Handbook of Labour Economics, Handbook of the Economics of Population Aging, Annual Review of Economics, Review of Economics and Statistics, the Journal of Labour Economics, International Economic Review, Journal of Applied Econometrics, Journal of Human Resources, Economic Journal, Fiscal Studies, American Economic Journal: Policy and other publications.

Previously he was a senior economist and research advisor on the microeconomics team in the economic research department at the Federal Reserve Bank of Chicago, and taught at the Department of Economics and the Business School at Northwestern University.

French received a B.A. in economics from the University of California–Berkeley, and M.S. and Ph.D. degrees in economics from the University of Wisconsin–Madison.


This paper estimates the effect of Disability Insurance receipt on labour supply, accounting for the dynamic nature of the application process. Exploiting the effectively random assignment of judges to disability insurance cases, we use instrumental variables to address the fact that those allowed benefits are a selected sample. We find that benefit receipt reduces labour force participation by 26 percentage points three years after a disability determination decision when not considering the dynamic nature of the applications process. OLS estimates are similar to instrumental variables estimates. We also find that over 60% of those denied benefits by an Administrative Law Judge are subsequently allowed benefits within 10 years, showing that most applicants apply, re-apply, and appeal until they get benefits.

Next, we estimate a dynamic programming model of optimal labour supply and appeals choices. Consistent with the law, we assume that people cannot work and appeal at the same time. We match labour supply, appeals, and subsequent allowance decisions predicted by the model to the decisions observed in the data. We use the model to predict labour supply responses to benefit denial when there is no option to appeal. We find that if there was no appeals option, those denied benefits are 35 percentage points more likely to work. However, there is considerable heterogeneity in responses. Most individuals in their 40s would return to work if denied benefits, for example. Our results suggest that many of those denied benefits not because they are unable to work, but because they remain out of the labour force in order to appeal their benefit denial.

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When and where

1.00pm - 2.00pmTuesday 17th January 2017

MG25 Myddelton Street Building City, University of London 1 Myddelton Street London EC1R 1UW United Kingdom