This thesis consists of three chapters. In the first chapter, I investigate how important are ad- justment costs for individuals when they face incentives to work induced by a policy change. I provide the first estimate of heterogeneous adjustment costs by exploiting a unique policy change that induces large incentives to work. The policy change dramatically decreased marginal tax rates on earnings in a non-linear tax schedule on earnings in a disability in- surance program in Canada. Individuals continue to bunch at the location of a kink even when the kink no longer exists, suggesting that they face adjustment costs when changing their labor supply. I use the amount of bunching at the kinks before and after the policy change to estimate the size of adjustment costs that vary by individuals’ ability to work. The estimated adjustment costs are higher for individuals with lower ability; varying from zero to 8 percent of their potential earnings. The estimated elasticity of earnings with respect to tax rates – accounting for heterogeneous adjustment costs – is 0.2 which is double the size of the one estimated with no adjustment costs. The policy change also decreased the marginal tax rates far away from the kinks. I then evaluate the overall effects of the policy change on the labor supply using a Difference-in-Differences design. I find that some individuals work more and some others start working in response to the large induced incentives to work. Accounting for the adjustment costs then might explain the disparate findings on the effects of increase in incentives to work on labor supply in disability insurance programs. My find- ings therefore have important implications for designing policies and targeting heterogeneous groups to increase labor supply in disability insurance programs.
In the second chapter, I describe statistical determinants of Labor Force Participation (LFP) of adults with Autism Spectrum Disorder (ASD) and investigate what might explain their lower LFP than those with the other developmental, neuro-cognitive and physical dis- abilities. The estimated Average Marginal Effect of completing high school on probability of LFP from Probit models is the highest for those with ASD among all the other comparison groups of those living with the other disabilities. The estimated effects are higher for younger adults than that for the older ones. These findings suggests that improving education attain- ments of younger individuals with ASD could comparatively be more effective in improving their LFP. Blinder-Oaxaca decompositions show that considerable portion of the lower LFP of adults with ASD than the other comparison groups is not explained by their observable characteristics, suggesting that they might be subject to stigma and discrimination more often than the others with disabilities.
In the last chapter, co-authored with Lucie Schmidt and Lindsay Tedds, we investigate whether insurance coverage of medical treatments with high out-of-pocket costs affects pa- tients’ utilization. We exploit a policy intervention that mandates coverage for In-Vitro- Fertilization (IVF) –an expensive infertility treatment with low success rates in one cycle of treatment– in private health insurance in the US. Mandated coverage varies from one cycle of treatment in some states to unlimited cycles in some others. Patients’ might increase their chances of conceiving an infant by more aggressive treatments, resulting in risky and costly multiple births. We provide the first estimate of the effects on adverse outcome of aggressive treatments from number of IVF cycles covered in mandated health insurances. We use a Generalized Synthetic Control framework to estimate causal effects. Our estimated effects varies from 0.31 percentage points decrease in share of multiple births in states with only one covered cycle to more than 35 percentage points increase in states with unlimited coverage. Our estimates of effects of mandated IVF coverage on adoption –the main alternative for IVF patients with low chances of success– furthermore shows that adoption rates in states with more covered cycles is lower. These findings suggests that high out-of-pocket costs has strong behavioural responses from patients. In states with more coverage, more patients with low chance of success –who would prefer aggressive treatments– use the treatment. These patients otherwise would have adopted a child. Our findings have important implications for designing policy interventions to increase accessibility of expensive and technologically advance medical treatments while simultaneously decreasing utilization costs.