How Does Disability Affect Incomes? An Empirical Study on Older European Workers

This paper studies the impact on personal income resulting from the onset of disability. Using the longitudinal Survey of Health Ageing and Retirement in Europe, we compare the incomes trajectories of individuals who become disabled and of those remaining in healthy conditions during the same period. Assuming that a disability shock may result in a loss of global income due to the negative effect on wages being much higher than the positive effect on compensation incomes, we strive to identify a causal impact by combining a difference-in-differences approach with kernel propensity score matching, thus allowing us to take into account observable and time-invariant unobservable individual characteristics. Our findings suggest a strong negative impact on wages and which is not compensated by compensation incomes (no significant result) leading to a decrease in personal income. We also perform heterogeneity tests according to the gender and to the generosity of Social Welfare Systems demonstrating that the most generous countries play a protective role