Citation

Discussion Paper Details

Please find the details for DP5546 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Disability Testing and Retirement

Author(s): Helmuth Cremer, Jean-Marie Lozachmeur and Pierre Pestieau

Publication Date: March 2006

Keyword(s): disability, retirement and social security

Programme Area(s): Public Economics

Abstract: This paper studies the design of retirement and disability policies. It illustrates the often observed exit from the labour force of healthy workers through disability insurance schemes. Two types of individuals, disabled and leisure-prone ones, have the same disutility for labour and cannot be distinguished. However, they are not counted in the same way in social welfare. Benefits depend on retirement age and on the (reported) health status. We determine first- and second-best optimal benefit levels and retirement ages and focus on the distortions which may be induced in the individuals? retirement decision. Then we introduce the possibility of testing which sorts out disabled workers from healthy but retirement-prone workers. We show that such testing can increase both social welfare and the rate of participation of elderly workers; in addition disabled workers are better taken care of. It is not optimal to test all applicants. Surprisingly, the (second-best) solution may imply later retirement for the disabled than for the leisure prone. In that case, the disabled are compensated by higher benefits.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5546

Bibliographic Reference

Cremer, H, Lozachmeur, J and Pestieau, P. 2006. 'Disability Testing and Retirement'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5546