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.

 Spikes in exits at unemployment insurance (UI) benefit exhaustion are often seen as evidence of workers' moral hazard. Using administrative data we document a spike of out-of-labor force exits into sickness insurance (SI) at UI benefit exhaustion. Comparing detailed health and labor market characteristics of exits cohorts before and at benefit exhaustion, we show that the spike is unlikely to be driven by moral hazard of relatively healthy workers. Instead, our results point to catch-up effects of initial non-take-up of SI benefits by workers with substantial mental and physical health conditions. These results oppose earlier work on substitution between UI and SI benefit schemes and have very different policy implications.

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