Disability and Occupational Labor Transitions: Evidence from South Korea

We examine how certain occupational physical requirements affect labor transitions of disabled workers by exploiting a unique feature of South Korean Disability Insurance (DI), where award rules are based solely on an applicant’s medical condition, independent of his previous occupations. We estimate the labor market response to a health shock by constructing a physical intensity measure from O*NET and applying it to longitudinal South Korean household panel data. Our results suggest that health shocks initially lead to a 14 to 20 percent drop in employment and that this effect is greater for workers who previously held physically demanding occupations. Those who remain part of the labor market exhibit higher occupational mobility toward less physically demanding jobs. These findings imply that the magnitudes of income risks associated with health shocks vary depending on occupational and skill characteristics.