Panel Paper: The Effects of Firm Incentives in Disability Insurance on Employment

Saturday, November 10, 2018
8223 - Lobby Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Amelia Hawkins, University of Michigan and Salla Simola, Aalto University

The rising fraction of working-aged adults claiming Social Security Disability Insurance (SSDI), the solvency of the SSDI Trust Fund and the decline in employment among adults with disabilities have all contributed to recent proposals for changes to SSDI in the United States. Recent proposals have focused on financially incentivizing employers to internalize the costs of their employees leaving the workforce and entering disability insurance. Despite the promise of employer incentives to reduce disability insurance program in-flows and increase employment rates among the disabled, there are also possible unintended consequences to consider. Shifting the liability of disability insurance onto employers might also discourage firms from hiring people with pre-existing conditions, thus contributing to the unemployment of people with disabilities rather than ameliorating it. To investigate these issues empirically, we study a change to the Finnish disability insurance system that increased firms’ coinsurance while reducing their premiums for the disability insurance costs of their employees. Because these rule changes affected some firms but not others, we use a difference-in-difference strategy to get at the relationship between firm financial incentives and employment. We use the Finnish Longitudinal Employer-Employee Dataset (FLEED) to conduct this research. Preliminary evidence suggests that shifting to higher coinsurance and lower premiums reduced the in-flow of workers to disability insurance while the composition of workers employed at affected firms shifted towards younger, higher educated workers at overall lower risk of entering the disability insurance system.