Labor Supply Decisions of Disabled Male Workers

Abstract

We use unique survey data, collected by the Workers' Compensation Board of Ontario, to estimate the labor supply response of disabled male workers to benefit payouts and their post-injury wage. Our data enable us to fill gaps in the existing literature by estimating the hours as well as return-to-work response, for younger as well as older workers, and based on objective rather than subjective self-reporting of disability status. Our results suggest a strong positive incentive effect from higher wages, and that lump-sum benefit payouts that are not reduced if earnings increased generally do not have adverse incentives on the return to work and hours decision, except for an income effect over the longer life cycle of younger men. We also discuss the policy implications of our estimates.