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Abstract:

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CEP Discussion Paper
Can Helping the Sick Hurt the Able? Incentives, Information and Disruption in a Welfare Reform
Nitika Bagaria, Barbara Petrongolo and John Van Reenen April 2015
Paper No' CEPDP1347:
Full Paper (pdf)

JEL Classification: H51; I13; J18


Tags: incentives; public sector; unemployment benefits; performance standards

Disability rolls have escalated in developed nations over the last 40 years. The UK stands out because the numbers on these benefits stopped rising when a welfare reform (“Jobcentre Plus”) was introduced that integrated employment services and benefits for all categories of welfare recipients. The policy sharpened bureaucratic incentives to help disability benefit recipients into jobs relative to unemployment insurance recipients. We exploit the staggered roll-out of the policy across geographical areas to identify treatment effects. In the long-run, the policy raised exits from disability benefits by 6% and lead to an (insignificant) 1% increase in unemployment outflows. This is consistent with a model in which reorganisation helps both groups, but bureaucrats shifted job-brokering efforts towards those on disability benefits and away from the unemployed. Interestingly, the policy had a negative short-run impact on exits for both groups, suggesting important disruption effects. We estimate that it takes about six years for the estimated benefits of the reform to exceed its costs, which may be why welfare reforms are hard to introduce with myopic policy-makers.