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.