Disability benefits usually reduce work in two ways: by raising income outside work, and by phasing out as earnings rise. Telling the two apart matters for policy design. A new working paper by Bouke Klein Teeselink and George Melios uses a 2013 reform of the UK’s Personal Independence Payment, a benefit with no earnings test, to do exactly that.
Benefit receipt shifted substantially with the reform, by 1.7 to 5.9 percentage points across identification strategies, yet for people whose eligibility changed because of their health conditions, employment did not respond. Regions assigned to the stricter assessor show an employment differential of about three percentage points, which the authors read as reduced-form evidence because the first stage is weak.
Read the full story of the paper under Insights.