Cutting Public Occupational Disability Insurance: The Effects on Overall DI Inflows and Outflows, Labor Market Outcomes, Social Insurance Substitution, and Household Consumption

This project evaluates a major reform of Germany’s public Disability Insurance (DI) system. Since 2001, cohorts born after 1960 are no longer eligible for occupational DI, which previously granted benefits when health shocks prevented work in one’s former occupation. Instead, eligibility now requires general work disability. First, the project will use administrative microdata from the statutory pension insurance (Deutsche Rentenversicherung). Preliminary analyses with aggregated data (1995–2018) show that the reform reduced long-run DI inflows by over 30%. Using microdata, we will analyze inflows and outflows in more detail and study heterogeneity by sociodemographic characteristics. Second, we will estimate the reform’s effects on labor market outcomes, including labor force participation, full-time and part-time employment, income, and occupational mobility. Third, the project will examine substitution toward other social insurance programs, such as unemployment benefits, long-term sick leave, rehabilitation, and means-tested social assistance. Finally, we will use household consumption data from the Einkommens- und Verbrauchsstichprobe (EVS) to study adjustments in spending. Causal estimates from a regression discontinuity design will be embedded in a Baily–Chetty framework to assess the welfare effects of the reform.