Extra CPHEB seminar: Nicolas Ziebarth

This additional CPHEB seminar by Nicolas Ziebarth (Cornell University/University of Mannheim) is jointly organized with the department of Economics, Econometrics and Finance (EEF) and will be held on-site at our campus.

Title: Fundamentally Reforming the DI System: Evidence from German Notch Cohorts

Abstract:
This paper studies a fundamental reform of the public Disability Insurance (DI) system in Germany. Effective 2001, cohorts born after 1960 are no longer eligible for “occupational DI.” Occupational DI (ODI) implies eligibility when health shocks prevent employees from working in their previous occupation. For the affected “notch cohorts”, the new DI eligibility rules require work disability in any job. Using administrative data, we first show that the reform significantly reduced the inflow of new DI beneficiaries by more than 30% in the long-run. Next, we validate these findings using representative SOEP household panel data comprised of the entire underlying population. The second part studies interaction effects with the private ODI market. Using representative data, we do not find much evidence that the notch cohorts purchased individual private ODI policies at significantly higher rates to compensate for the reduced generosity of the public DI system. To explain such low take-up, we employ a general equilibrium model featuring the roles of the social safety net, administrative costs, and asymmetric information. These driving forces help explain four stylized facts in the individual experience-rated private market for ODI policies: (1) low private ODI take-up and interaction effects with the public system---despite a high lifecycle work disability risk, (2) strong and positive income and health gradients in private ODI take-up, (3) inversely related income and health gradients in the lifecycle work disability risk, and (4) adverse selection.