Working Paper

Occupational hazards and social disability insurance

Abstract: Using retrospective data, we introduce evidence that occupational exposure significantly affects disability risk. Incorporating this into a general equilibrium model, social disability insurance (SDI) affects welfare through (i) the classic, risk-sharing channel and (ii) a new channel of occupational reallocation. Both channels can increase welfare, but at the optimal SDI they are at odds. Welfare gains from additional risk-sharing are reduced by overly incentivizing workers to choose risky occupations. In a calibration, optimal SDI increases welfare by 2.6% relative to actuarially fair insurance, mostly due to risk sharing.

Keywords: Disability Insurance; Occupational Choice; Optimal Policy;

JEL Classification: E62; I13;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2016-10-03

Number: 2014-24

Pages: 69 pages