Research

Workers with fixed-term contracts typically have worse health than workers with permanent contracts. We show that these differences in health translate into a substantially higher (30%) risk of applying for DI for the Netherlands. Using unique administrative data on health and labor market outcomes of all employees in the Netherlands, we decompose this differential into: (i) selection of workers types into fixed-term contracts; (ii) the causal impact of temporary work conditions on worker health; (iii) the impact of differential employer incentives to reintegrate ill workers; and (iv) the differential impact of labor market prospects on the decision to apply for DI benefits. We find that selection actually masks part of the DI risk premium, whereas the causal impact of temporary work conditions on worker health is limited. At the same time, the differences in employer commitment during illness and differences in labor market prospects between fixed-term and permanent workers jointly explain almost 90% of the higher DI risk.

While there is evidence of ``spikes'' of exits into employment at Unemployment Insurance (UI) benefit exhaustion, the presence and implications of concurrent strong increases in exits out of the labor force are less well understood. Using Dutch administrative data, we document such a spike of out-of-labor force exits into Sickness Insurance (SI) at the moment of UI benefit exhaustion, equal to about 130% of pre-spike inflow rates. Comparing the spike cohort into SI to pre-spike cohorts, we show that differences in terms of healthcare utilization and demographics at the end of the UI benefit period are limited. As an exception to this, we find the share of migrants in the spike cohort to be substantially higher. Once workers start receiving SI benefits, however, we see that workers in the spike are less likely to exit SI and more likely to be awarded disability benefits after two years of SI receipt. These differences already materialize in the first four months of SI receipt, with ``stayers'' in the spike that use significantly less healthcare but probably have weaker labor market positions. External screening after 12 months of SI receipt has more impact on the spike cohort and partly offsets the differences in health conditions between the cohorts. 

While a large share of Disability Insurance recipients in OECD countries are expected to recover, outflow rates from temporary disability schemes are typically negligible. We estimate the disincentive effects of disability benefits on the response to a (mental) health improvement using administrative data on all Dutch disability benefit applicants. We compare those below the DI eligibility threshold with those above and find that disincentives significantly reduce work resumption after health improves. Approximately half of the response to recovery is offset by benefits. Estimates from a structural labor supply model suggest that disincentives are substantially larger when the worker's earnings capacity is fully restored.tem