Technological Change, Job Loss and Disability Insurance

Abstract

Technological change may increase disability insurance (DI) receipt not only by affecting workers’ health, but also by lowering the labor-market value of their skills. We study this mechanism using Dutch administrative data on workers displaced in mass layoffs. Exploiting variation in occupational routine task intensity in a triple-differences design, we find that a one standard deviation increase in exposure to technological change raises cumulative DI entry by 0.60 percentage points within six years after displacement, increasing the average displacement effect by about 20%. We decompose this effect into health, application, and award channels. The increase in DI entry is entirely driven by additional applications. We find no effect on medication-based health risk and no increase in the conditional award rate among applicants. Induced applicants are awarded DI at the same rate as other applicants, suggesting that displacement triggers applications among workers who already satisfy eligibility criteria. Assessors are not more lenient for this group. These findings imply that in earnings-loss-based DI systems, disability insurance partly functions as insurance against the labor-market consequences of technological change.

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