The Effect of Unconditional Cash Transfers on the Return to Work of Permanently Disabled Workers

Kathleen J. Mullen, Stephanie Rennane

NBER Disability Research Center Paper No. NB 17-09
Issued in September 2017

We analyze the effect of an unconditional cash benefit provided to permanently disabled workers on return to work outcomes. Using administrative claims data on worker characteristics, disability ratings, and quarterly earnings, we take advantage of a large policy change to the design of permanent partial disability workers’ compensation benefits in Oregon. We exploit variation in benefit generosity between workers with different impairments before and after the policy change with both a difference-in-differences and control function approach. We estimate labor force participation elasticities and elasticities for the probability of earning above Substantial Gainful Activity (SGA) in the range of 0.05-0.1, and earnings elasticities in the range of 0.4-0.8. The significant labor supply responses to this unconditional disability payment provides evidence of an income effect, and suggests that workers’ return to work decisions after a disability are not driven solely by changes in the incentive to work. Instead, these results suggest that the additional income provided by cash benefits enables workers to make a more optimal decision about their labor supply after disability onset.

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