Institute of Labor Economics: 'Selective Exercise Of Discretion In Disability Insurance Awards'
The discussion paper was written by
Here are excerpts:
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ABSTRACT
Variation in assessor stringency in awarding benefits leaves applicants exposed to uninsured risk that could be systematic if discretion were exercised selectively. We test for this using administrative data on applications to the Dutch disability insurance program. We find that discretion is more often exercised in favor of lower-waged applicants. Pre-disability wages drop discontinuously just above disability thresholds for entitlement to partial benefits. Assessors are more likely to discard the highest-paying algorithm-generated job matches that determine earnings capacity and entitlement when evaluating lower-waged applicants. While these applicants benefit on average, they are exposed to greater risk from between assessor variation.
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Conclusions
As with many other social programs, disability insurance awards are decided by applying objective rules in combination with judgement to take account of characteristics and circumstances that are difficult to measure and codify. Giving assessors discretion makes use of additional information they can glean from applicants at the inevitable cost of inconsistency and horizontal inequity. Our analysis of applications to the Dutch DI program reveals that judgements do not only generate random between-assessor variation in award propensities - system noise (Kahneman, Sibony, and Sunstein 2021) - but can also produce systematic differences in awards across applicants distinguished by labor market characteristics. We find that discretion is more likely to be exercised in favor of lower-waged applicants. Discontinuous drops in pre-disability wages just above entitlement thresholds reflect upward jumps in the fraction of lower-waged applicants who just qualify for higher benefits. This is contrary to what would be expected to arise if rules that make entitlement an increasing function of the predisability wage were applied strictly. It occurs because some assessors are less likely to follow a guideline to calculate earnings capacity and entitlement using the highest-paying algorithm-generated job matches when they are evaluating lower-waged applicants. They exert effort to rule out job matches for these applicants and are less likely to do this for higher-waged applicants. While this selective exercise of discretion benefits lower-waged applicants on average, they are exposed to greater uninsured risk due to larger between assessor variation in awards.
Selective exercise of discretion in favor of lower-waged DI applicants may arise from claim assessors - the street-level bureaucrats (Lipsky 2010) who implement disability insurance policy - acting with a sense of fairness that conflicts with the insurance principle of the DI program. If lower-waged applicants value DI benefits more, possibly because they are exposed to more uninsured non-health risks related to their disadvantaged labor market position (Deshpande and Lockwood, 2022), then the selective discretion exercised by assessors could increase the social value of the program, although we have not tested that hypothesis. While the relatively high social safety net in
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References
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About the Authors
Carlos Riumallo Herl,
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The discussion paper is posted at: https://docs.iza.org/dp15928.pdf
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