Disability benefits, labour force participation, and health: Evaluating the effect of social protection policies

ended

In the last decade, financial crises and population ageing have led to the retrenchment of the welfare state. One area under financial pressure is the provision of disability benefits. In response, governments have reduced expenditures by tightening eligibility criteria or reducing the benefit amounts. The Netherlands has become an example of such a system as it has persistently reduced the number of new individuals receiving disability benefits. Even though the reforms seem to have achieved their objective, there is little understanding of how they impact labour force participation and individual level health. The literature shows that not receiving a disability benefit leads to higher probabilities of working. However, there is surprisingly little about whether the effect is persistent, whether it differs across education groups, and whether it impacts household members. By contrast, there is a dearth of knowledge on the causal effect on health. This is especially striking since the original aim is to protect health. This research will contribute to our understanding of disability benefits by estimating their causal effect on work and health. For that, I will use unique administrative data from the Netherlands and exploit the regulations that define eligibility by means of an innovative empirical approach. The combination of this approach and the Dutch data will allow me to estimate the effect of disability benefits on work and health, and more importantly, to evaluate its persistence, its heterogeneity by education, and its impact on household members. As many countries strive for the financial sustainability of social programs, the knowledge generated in this research will provide valuable evidence of how government benefits impact labour force participation and individual level health. This nuanced understanding is essential as policy makers seek to prioritize programs and lack evidence to guide them in avoiding costly problems for future generations.