Low labor market attachment and disability insurance, some expected relationships

Insurance fraud is a constant problem, and we have addressed this in the case of employment insurance before. Now it is the turn of invalidity insurance. We occasionally read stories in the press about gross fraud by healthy people, but what about those at the margin? Of course, they are impossible to measure individually, but maybe something can be measure collectively.

Joshua Angrist, Stacey Chen and Brigham Frandsen look at Vietnam Veterans. The latter benefit from dedicated disability insurance, if they use such a facility more frequently then non-veterans, it must be because of war-related conseuqnces, right? Angrist, Chen and Frandsen use the 2000 census, which has birth date information, to identify who likely went to Vietnam, as birth dates were linked to draft status. It turns out that invalidity declared in the census is no more likely for Vietnam vetarans. Well, allmost all, because those with low skills, who typically have lower employment prospects, report higher invalidity incidence than comparable men who did not go to Vietnam. The authors argue that this cannot be due to a higher incidence of war injuries for low skilled soldiers. So it can only be that they view disability insurance as a good alternative to employment.