Sharp Declines, Slow Recovery: Disability Onset and Labor Market Trajectories in Chile

This paper studies how disability onset and subsequent administrative registration affect labor market trajectories in Chile, a middle-income country with a large informal sector. Using panel survey data linked to administrative records, we estimate dynamic employment and earnings effects around disability events. Disability onset generates sharp and persistent losses: Full-year employment falls by about 11 percentage points at onset and by 20 to 25 percentage points within six years, while formal wages decline by approximately 6% initially and by more than 30% five years later. Among those who remain employed, the probability of working informally rises over time while formal employment probability falls, indicating adjustment along the margin of employment quality. Registration is clearly endogenous: Individuals who certify display preexisting employment deterioration, which prevents a causal interpretation of the effects of registration.