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Economic incentives and health-related exits from the labour force

This project analyses how the design of the disability pension affects the incentives to retire early from the labour force. Ideally, the disability insurance system should support people who are permanently unable to work. However, it has proved challenging to design a disability insurance system that simultaneously provides a strong income protection for those in need, while avoiding a high number of disability claims.

In the theoretical part of the report, we develop a model that characterizes the optimal timing of ending a job from the point of the view of the private actors (the employer and the employee) and society (the government). We show that a key challenge for the disability insurance system is the conflict of interest that arises when the state, rather than the employers, bears the bulk of the disability insurance costs.

In the empirical part of the report, we analyse how measures that increase the employers’ responsibility for the disability pension costs of their employees might align these interests, and prevent work disability.

We discuss a system where local governments are responsible for the disability insurance costs of their employees whenever these are higher than a benchmark value that is based on the disability insurance costs in comparable units. We also discuss the co-payment systems that are in place in the disability pension systems in the Netherlands and Finland, and the problems associated with such systems.

We use data from IFAU-S, LOUISE, Lönestrukturstatistik and the Swedish Pensions Agency for the years 2006-2015.

Published by:

Anahid Zakinian