The Effect of Disability on Labour Market Outcomes in Germany

In this article we analyse the individual effects of becoming disabled on key aspects of labour market outcomes in Germany. The German Socio Economic Panel (1984-2002) collects socio-economic and health data. This data is organized such that the potential problems for such an estimation that may arise from disability not being a random event are considerably reduced. Using matching methods, we find a reduction of individual employment chances of about 9 to 13%, the level depending on the degree of disability. We find no statistically significant evidence for a reduction in income or an increase in unemployment due to disability. We interpret these findings as an indication that the German social security systems appear to successfully mitigate or at least reduce the economic hardship that comes with the event of disability.