Financial incentives in disability insurance in the Netherlands

In this paper, we assess the impact of financial incentives on the inflow in the public Disability Insurance (DI) scheme in the Netherlands. For this matter, the variation in replacement rates over different sectors is exploited to estimate the probability of DI enrolment over a sample of employees from the Dutch Income Panel (1996-2000). On the basis of these administrative data, we find a point estimate of the elasticity of DI enrolment with respect to the DI wealth rate of 2.5.

The decentralization of Social Assistance and the rise of Disability Insurance enrolment

In this paper, we assess spillover effects of Social Assistance (SA) decentralization in the Netherlands, in particular towards (a centrally administered) Disability Insurance scheme (DI). DI enrolment has increased strongly since the decentralization of SA. Many economists and policymakers believe that fiscal decentralization, the decentralization of government expenditures to local governments, enhances public sector efficiency. Vertical externalities – i.e. spillovers between local and central government – may however undo part of this advantage. In this paper, we assess spillover effects of Social Assistance (SA) decentralization in the Netherlands, in particular towards (a centrally administered) Disability Insurance scheme (DI). DI enrolment strongly increased since the decentralization of SA. We find that the sensitivity of local DI enrolment with respect to the stock of local SA recipients has increased over time, given that we control for both observed and unobserved disability risk factors. IV estimates show that, since the decentralization of SA, at least one third of DI inflow was diverted from SA.

Disability insurance and unemployment insurance as substitute pathways

In this paper, we estimate the degree of substitution between enrolment into Disability Insurance (DI) and Unemployment Insurance (UI) in the Netherlands. Starting in the 1990s many policy measures aimed at reducing DI enrolment, and increase labour force participation. We quantify whether these policy measures have led to a reduction in hidden unemployment in DI. A side effect of the reforms may be increased pressure on UI. Therefore, we simultaneously estimate reverse substitution, that is, hidden disability in UI. To this end, we employ a sample of firms in the Dutch AVO database from the period 1993-2002. Using instrumental variables in a bivariate Tobit specification, we identify the hidden components in both respective schemes. The estimation results indicate that about 3% of all dismissals took place through DI, which implies that about one quarter of the DI enrolments observed in our sample in fact consists of hidden unemployment. We find no evidence for reverse substitution of disabled persons ending up in UI.

Hidden unemployment in disability insurance in the Netherlands; an empirical analysis based on employer data

In this paper, we construct and estimate a (semi-) structural model, so as to uncover the fraction of hidden unemployment in the Disability Insurance (DI) enrolment rate. For this purpose, we use longitudinal administrative data of Dutch employers for 1994-2003. We find the (average) fraction of hidden unemployment in DI enrolment to amount to about 11%. This corresponds to 2.6% of the ‘true’ unemployment insurance (UI) enrolment rate of employers. Over the years, we observe a strong decrease in this fraction, from 5.4% in 1995, to 0.7% in 2003. In addition, our estimates suggest that most of correlation that is observed between the UI and DI enrolment rates can be explained by substitution effects, and not by ‘true’ correlation between the schemes that is exogenous to the firm. In the model, the fraction of hidden unemployment in the DI scheme is (over-)identified from various restrictions imposed by the data. First, identification follows from exclusion restrictions obtained from the coefficient estimates of variables that are assumed to influence the UI enrolment rate only. For this purpose, we use information on the wage distribution of workers employed at the firms in our sample, and sectoral growth rates. Second, identification of substitution effects follows from the observed correlation between both enrolment rates.

Are older workers overpaid? A literature review

It is widely believed that wage and productivity profiles of individual workers do not coincide at all ages. We give an overview of the theories which provide a rationale for this, and discuss the empirical literature. Human capital theories typically imply that wages rise with tenure, so that job reallocation at old age would imply a wage cut. Incentive theories typically imply that wages exceed productivity at the end of a worker's career. Bargaining power of unions may also lead to 'overpayment' of older workers. Some general conclusions regarding the wages of older workers are formulated on the basis of the authors' reading of the empirical literature.

The impact of reforms on labour market exit probabilities

Early retirement schemes and disability insurance in the Netherlands have both been reformed during the past decades. The reforms have increased incentives to continue working and have decreased the substitution between early retirement and disability. This study investigates the impact of the reforms on labour market exit probabilities We use administrative data for workers in the Dutch health care sector between 1999 and 2006. We estimate a multinomial Logit model for transitions out of the labour force. The empirical results suggest that the reforms have been effective, as the labour market participation rate of the elderly has increased. The concept of substitute pathways into retirement seems less relevant today as the results confirm that disability insurance is closed off as an early retirement exit route. Key words: early retirement, disability insurance, labour supply �

The Decline of Early Retirement Pathways in the Netherlands: An Empirical Analysis for the Health Care Sector

Early retirement schemes and disability insurance in the Netherlands have both been reformed during the past decades. The reforms have increased incentives to continue working and have decreased the substitution between early retirement and disability. This study investigates the impact of the reforms on labour market exit probabilities. We use administrative data for workers in the Dutch health care sector between 1999 and 2006. We estimate a multinomial Logit model for transitions out of the labour force. The empirical results suggest that the reforms have been effective, as the labour market participation rate of the elderly has increased. The concept of substitute pathways into retirement seems less relevant today as the results confirm that disability insurance is closed off as an early retirement exit route.early retirement, disability insurance, labour supply

Early retirement behaviour in the Netherlands; evidence from a policy reform

In the early 1990s, the Dutch social partners agreed upon transforming the generous and actuarially unfair PAYG early retirement schemes into less generous and actuarially fair capital funded schemes. The starting dates of the transitional arrangements varied by industry sector. In this study, we exploit the variation in starting dates to estimate the causal impact of the policy reform on early retirement behaviour. We use a large administrative dataset, the Dutch Income Panel 1989-2000, to estimate hazard rate models for early retirement. We conclude that the policy reform induced workers to postpone early retirement. Model simulations show that the first phase of the transition has already led to an average retirement postponement by 4 months in the group of elderly workers investigated. It will become about 9 months once the transition is fully completed.

The trend in female labour force participation; what can be expected for the future?

During the 1980s and 1990s, the Netherlands experienced a strong increase in the labour force participation of women. This study investigates the increase of participation over the successive generations of women, and produces an educated guess for future participation. For this purpose, we estimate a binary age-period-cohort model for the generations born between 1925 and 1986, using data from the Dutch Labour Force Survey 1992-2004. The results indicate that the increasing level of education, the diminishing negative effect of children, and unobserved cohort effects have played an important role. According to our estimates, the increase in unobserved cohort effects has stopped since the generation born in 1955. This result is in line with results of studies on social norms and attitudes towards the combination of female employment and family responsibilities, which show a similar pattern over the successive generations. We conclude that the growth of female participation is likely to slow down in the near future.

Flexible Retirement

Flexible retirement - that is, the opportunity to choose oneââ¬â¢s own personal retirement age - serves as a hedge against pension risk and provides insurance to workers facing health or productivity shocks. This paper discusses three conditions to provide insurance through flexible retirement. Flexible retirement and flexible pension schemes are in practice closely linked because of imperfect capital markets and institutional restrictions. First, it should be possible to adjust the pension starting date at limited cost. This condition is gradually being fulfilled, as many countries are moving towards more actuarially neutral pension schemes. Second, individuals should be willing to adjust their labour supply in case of a wealth shock. This condition seems largely fulfilled, although the available empirical evidence suggests that the framing of pension wealth is at least as important as the income effect. Third, the labour market should be able to deal with flexible individual retirement decisions. This condition is gaining importance, but has not yet received much attention in the literature. Institutions often hamper employment past the ‘standard retirement age’. Moreover, the hiring rates of older workers are low and their unemployment duration is high. Institutional reforms facilitating flexible retirement opportunities are desirable from an insurance perspective.