Equal health, equal work? The role of disability benefits in employment after controlling for health status.

In Spain, an individual can be considered legally disabled in one of the following two ways: by either receiving a disability support benefit and/or holding a certificate of disability. Having at least one of these official sanctions entitles the disabled person to a number of financial and tax advantages. However, only support benefits entail a monthly allowance and, at the same time, the individual is required to undertake a different job to that of his/her previous one. To jointly estimate (after controlling for the health characteristics of the disabling condition and for unobserved factors) the probability of receiving disability benefits and the probability of working, we make use of a newly released database of individuals with a certificate of disability. Additionally, we exploit the rich set of health measures that this database also provides. Our results show that the probability of working is 5% lower (average treatment effect, ATE) for those disabled individuals receiving benefits. However, when we perform the estimation for individuals with differing degrees of disability, the disincentive effects of the benefits are only significant for individuals with the mildest level of disability (33-44%) i.e. those who are on the threshold of being disabled.