An International Comparison of the Efficiency of Government Disability Programs

There are large variations across countries in the fraction of the workforce receiving disability insurance (DI) payments, ranging in 2008 from 3.8 percent in Spain to 10.3 percent in Sweden. Previous research has stressed the importance of institutional features of DI programs in explaining overall costs, but much less is known about the efficiency of such programs in their ability to screen applicants and thereby avoid Type I error (providing benefits to healthy recipients) or Type II error (denying benefits to unhealthy applicants). In this paper, we draw on the Survey of Health, Ageing, and Retirement in Europe (SHARE) and the Health and Retirement Study (HRS) in the United States for micro-level data on people between the ages of 50 and 64 during 2004-2010 to address this question. Using the Poterba, Venti, and Wise health index, we find large differences in the efficiency of DI systems across 11 countries. Switzerland, Denmark, and the U.S. ranking highly in efficiency rankings, while France, the Netherlands, and (on two measures) Sweden rank lower.