infonet-economy

The high implicit taxation of employment income (i.e. disabled lose benefits if labor incomes exceed a certain threshold) is considered one of the prime reasons for the low outflow from disability insurance. This paper presents the short-term results of a conditional cash program that financially incentivizes work related reduction of disability benefits. A randomized group of disability insurance beneficiaries receive the offer to claim a payment ("seed capital") of up to CHF 72,000 (USD 71,000) if they take up or expand employment and reduce disability insurance claims. Despite the large financial incentive, the results show that interest in taking-up the financial incentive is low at only 3%. This finding is consistent with the literature from other settings: financial incentives - even if they directly incentivize outflow and are rather generous - tend to be ineffective in stimulating outflow from the disability insurance.