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Income and Substitution Effects of a Disability Insurance Reform

2019-01 , Deuchert, Eva , Eugster, Beatrix

Disability insurance (DI) systems are widely criticized for their inherent work disincentives. This paper evaluates the effects of a Swiss DI reform that aims to lower DI benefits for a group of exisiting DI beneficiaries and introduces an additional level to the DI benefit schedule. The reform has only modest effects on earnings and employment but increases the disability degree of those threatened by a DI benefit decline. We estimate bounds on the income and substitution effects by employing the principal stratification framework. The income effect is quantitatively important, whereas the substitution effect is smaller and has bounds that include zero. The evidence suggests that caseworkers helped the insured with low labor market attachment to maintain a full DI benefit.

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Effects of a higher replacement rate on unemployment durations, employment, and earnings

2015-03-01 , Eugster, Beatrix

This paper discusses the effects of a higher unemployment benefit replacement rate on unemployment durations, employment, and earnings. A reform of the Swiss unemployment insurance in July 2003 increased the replacement rate by up to 5.88 ppt for individuals who earned between 3,536 and 4,340 CHF and have no children, while it did not change the replacement rate for all other unemployed persons. This allows to study the effects of a higher replacement rate adopting a difference-in-differences (DiD) approach. The change in the replacement rate increased unemployment durations by 3.1% - or roughly one week - for the treatment group. Women tend to react stronger than men. There is no effect of the level of the replacement rate on employment probabilities or earnings after the unemployment spell is finished.