Great Recession and Disability in Spain

Abstract

In this paper we evaluate the impact of the business cycle on participation in the Disability Insurance (DI) program in Spain in the context of the Great Recession, which has been particularly strong in this country. We follow two approaches. First, we use regional administrative data to estimate the effect of the regional unemployment rate on the number of applications, denials and allowances to the DI rolls. Second, we use longitudinal panel data to estimate the effect of the business cycle on transitions from different labor market states to the DI rolls. Our results show a pro-cyclical behavior of participation in DI during the years of the Great Recession. This is in contrast to the countercyclical response documented both for other countries as well as for Spain before 2008. We document some facts that partially explain why DI benefits have become pro instead of countercyclical during the Great Recession in Spain. Our results provide valuable evidence for policy-makers as they highlight that some of the disabled population may be left economically uncovered during the worst of times.