Disability Retirement in a Welfare State

Abstract

The increasing number of disability pensioners may put a strain on the welfare state. In this paper, we try to assess the effect of financial incentives on disability entrance. A sample of Norwegians on long‐term sick leave at the beginning of 1989 is examined as of the end of 1989, and the exit routes are studied in a multinomial logit model. The results indicate that the incentive effects of wages are larger than the disincentive effects of benefits. Furthermore, there is no evidence that having a “subjective” diagnosis affects the probability of becoming a disability pensioner. JEL Classification: H55; I18; J26

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