The earnings and employment losses before entering the disability system

Although a number of papers in the literature have shown the employment and wage differences between individuals receiving disability benefits and non-disabled individuals, not much is known about the potential employment and wage losses that disabled individuals suffer before being officially accepted into the disability insurance system (DI). Therefore, in this paper we compare individuals that enter into the DI system due to a progressive deterioration in the health status (ordinary illness) to similar non-disabled individuals. Our aim is to identify the differences in employment and wages between these two groups before disabled individuals are officially accepted into the DI system. We combine matching models and difference-in-difference and we find that the wage (employment) growth patterns of both groups of workers become significantly different three (five) years before entering the DI system. More specifically, our estimates suggest that 1 year before entering the system, there is a difference of 79 Euros/month in the wages of the two groups (8.3% of average wage) as well as a 7.8% point difference in employment probabilities.