Disability and Labor Market Performance

The paper presented in this ZEW Research Seminar analyzes the individual effects of disability onset on labor market outcomes using novel administrative data from Germany. Combining propensity score matching techniques with an event-study design, the authors find lasting negative impacts on employment and wages. One important mechanism are transitions to nonemployment after disability onset: the probability to become nonemployed increases by 10 percentage points after one year and by 14 percentage points after five years. For those who stay in employment, working parttime and switching to less physical demanding jobs are important adjustment paths. The negative labor market effects of disability onset are more pronounced for severely disabled, older and low-skilled individuals.