New Evidence on Disability Benefit Claims in Britain: The Role of Health and the Local Labour Market

Abstract

During the 1980s and 1990s, there was a steep rise in disability benefit claims in Britain, especially among older male workers, and the debate centred on the relative generosity of these benefits as well as the effects of deindustrialization. Since that time, the disability benefit system has been subject to a series of reforms, all largely aimed at reducing the number of claims and targeting benefits more closely to those with the greatest health need. At the same time, the labour market has also evolved, and until the recent Covid-19 pandemic, it had a historically low level of unemployment, accompanied by falling real earnings. We use individual longitudinal data from 2010 to 2018 in a dynamic panel framework to explore the relative importance of health status, benefit generosity and local labour market conditions for disability benefit claims in the modern British labour market. We focus particularly on spatial variation in claims, and find that, in line with older evidence, while health status is clearly important, geographic variation in labour market conditions still influences the propensity to claim those disability benefits that are conditional on not working.