Heterogeneous disability shocks and the dynamics of income, employment, and partial insurance

This study examines the long-run economic consequences of disability, distinguishing conditions by the activities they impair. Using linked Canadian survey and administrative tax data, I estimate the effects of disability onset on detailed income components over a ten-year horizon and assess gaps in partial income insurance across disability types. Mental-cognitive disabilities lead to larger and more persistent losses in market income than physical disabilities. Despite this, both groups experience similar levels of partial insurance and comparable declines in after-tax income. Importantly, substantial heterogeneity exists within these broad categories. Disaggregating physical and mental-cognitive disabilities into mutually exclusive activity-based subtypes reveals pronounced differences in income trajectories and access to insurance that are masked by aggregate classifications. While the tax-transfer system provides partial income protection overall, its effectiveness varies markedly across subtypes, offering especially limited support for mental health-related disabilities, particularly among younger and less-educated individuals.