Getting Disabled Workers Back to Work: How Important are Economic Incentives?

We investigate the impacts of economic incentives on the duration and outcome of temporary disability insurance (TDI) spells. The analysis is based on a large quasi-experiment in Norway, with a complete overhaul of the TDI benefit system. Our findings show that the labor supply of TDI claimants responds to both the benefit-level and to the level of local labor demand. The estimated elasticity of the employment hazard with respect to the benefit-level is – 0.3. We also find that the level of TDI benefits significantly affects the transition rate to alternative social insurance programs such as permanent disability and unemployment.