Financial work incentives for disability benefit recipients: Lessons from a randomized field experiment

Disabled insurance (DI) beneficiaries lose benefits if labor incomes exceed certain thresholds (so called cash-cliffs ). The high implicit taxation of employment income is considered one of the prime reasons for the low outflow from the disability insurance. This paper presents the results of the short-term evaluation of a conditional cash program that financially incentivizes work related reduction of disability benefits. A randomized group of DI beneficiaries receive the offer to claim a payment ( seed capital ) of up to CHF 72,000 (USD 71,000) if they take up or expand employment and reduce DI claims. Overall, interest in taking-up the financial incentive is low at only 3%. Increasing the size of the payment does not lead to higher take-up. Individuals close to cash-cliffs react more on seed capital but the overall magnitude is small. Our results suggest that work-disincentives imposed by cash-cliffs are unlikely the main driver for low employment and outflow from the Swiss disability insurance system, despite the fact that the partial disability insurance system generates a nonlinear budget set, and bunching behavior at cash-cliffs are observed prior implementation of seed capital.