Cluster-Seminar Public Finances and Living Conditions

Work-limiting disabilities pose a significant risk to the earnings potential and welfare of older workers. While coverage of public disability insurance (DI) systems is almost universal, the risk of becoming dependent on DI varies across occupations. In this paper, I study the value of public DI across different occupations using data from administrative social security records in Germany. I evaluate how severe health shocks that result in long-term sickness leave influence the employment trajectories of affected workers. I find that individuals who remain in the labor force are twice as likely to transition between occupations, with larger effects among workers in manual jobs than other occupations. I then use a structural model to study the relationship between disability insurance, occupational choice, and retirement in a life-cycle context. In counterfactual experiments, I evaluate how adjustments to the DI and retirement system affect the labor supply of different occupational groups.