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Federal Reserve Bank of St. Louis
Working Papers
Occupational hazards and social disability insurance
Amanda M. Michaud
David Wiczer
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.


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Amanda M. Michaud & David Wiczer, Occupational hazards and social disability insurance, Federal Reserve Bank of St. Louis, Working Papers 2014-24, 26 Aug 2014, revised 03 Oct 2016.
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Keywords: Disability Insurance; Occupational Choice; Optimal Policy
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