Employer Responsibility in Disability Insurance: Evidence from the Netherlands

Abstract:

We develop a framework to study optimal disability insurance when employers exhibit moral hazard. We show that the optimal system takes into account employer-side moral hazard and selective hiring. We illustrate these insights using a reform in the Netherlands that extended experience rating to temporary workers. Using this reform, we document a 24% decrease in disability inflow and an increase in worker selection, which could account for 14% of the overall decrease. Our model and results suggest that overall the policy improved welfare. Under some assumptions, experience rating should be further strengthened.

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Last updated on 09/25/2020