“The proportion of men collecting disability benefits at older ages varies greatly across countries — for example, more than 35 percent of 64-year-old men in Sweden and more than 25 percent of those in the Netherlands are on DI, versus 10 percent or less in Belgium, Italy, and Spain. Does this reflect differences in the underlying health status of older individuals in these countries? Or do differences in the provisions of the DI systems explain this variation in DI take-up rates?”
This is the question the Milligan and Wise attempt to answer in their Introduction to Social Security and Retirement around the World. The Healthcare Economist suspects the answer is the latter. Most people consider a quadriplegic disabled and those who are fully healthy are not disabled. Many individuals, however, have partial disability. Many workers, for instance, suffer from back pain. Measure the severity of the back pain is typically very difficult; some workers can continue working in physically strenuous jobs, others could continue to work in less physically strenuous jobs (e.g., blogging?), and for a minority the back pain is so severe that working at all is not feasible. Because partial disability is not only common but also difficult to verify, public programs leniency regarding disability program eligibility likely affects the number of beneficiaries more than the underlying health status of the country.
Sure enough, Milligan and Wise come to the same conclusion. Using “natural experiments” in which a country’s disability insurance reforms were not prompted by changes in health status or by changes in the employment circumstances of older workers, the researchers find that reforms have a large effect on the labor force participation of older workers.
- Kevin S. Milligan, David A. Wise “Social Security and Retirement around the World: Historical Trends in Mortality and Health, Employment, and Disability Insurance Participation and Reforms – Introduction and Summary,” NBER Working Paper No. 16719, January 2011.