Labor Seminars Amsterdam

Speaker(s)
Anne Gielen (EUR)
Date
2012-05-29
Location
Amsterdam

This paper examines individuals’ability to compensate for a decrease in the generosity of one social assistance program by increasing their reliance on other social assistance programs and on labor market earnings. We exploit an age discontinuity in the stringency of the 1993 Dutch disability reforms to obtain causal estimates of the effects of decreased generosity of disability insurance (DI) on individual behavior. We find substantial evidence of “social support substitution”: individuals offset each Euro of lost DI benefits by collecting 31 cents more on average from other social assistance programs. This benefit-substitution effect declines somewhat over time, but is still a significant 21% eight years after the reform. Individuals also react to the benefit reduction though an increase of labor earnings of 62 cents on average per Euro of lost DI benefits. Thus, on average, individuals make up for virtually all of the DI benefit increase though increases labor earnings and other forms of social assistance.