Job loss, disability insurance and health expenditure (Bíró, Elek 2020)

Labour Economics, DOI: 10.1016/j.labeco.2020.101856

We analyse the causal effect of job loss on disability insurance enrolment on a five-year horizon and the implications on health expenditure. Using administrative panel data from Hungary, we follow individuals displaced due to a mass lay-off and compare their labour force status to non-laid-off individuals with similar employment and health history. According to our estimates, being laid off increases the transition probability to disability 1.5-fold (or by 1.4% points) in four years, and half of the excess transitions occur within the first year. The four-year mortality rate increases 1.7-fold (or by 0.4% point).

Total outpatient, inpatient and pharmaceutical expenditure increase threefold when a laid-off individual takes up disability benefit, and decrease slightly afterwards, but do not reach the pre-disability levels. The medium term increase in health expenditure corresponds to 20−25% of the additional disability payments. Detailed medication data show that physical health shocks, the diagnosis of chronic physical conditions, such as hypertension or diabetes, and the deterioration of mental health all contribute to the observed surge in health expenditure.