The evolution of disability effects along the income distribution: Evidence from Italy

We investigate how disability affects income distribution and how this has evolved with the Great Recession in Italy, using 2005–2008 and 2015–2018 European Union Statistics for Income and Living Conditions data and a dynamic bivariate ordered probit model. We account for the extra costs of disability and model both income and disability processes, allowing for feedback effects from past income to disability. We find that disability is associated with income disadvantage, which the Great Recession has exacerbated. This has resulted in greater income inequality for non-disabled persons and smaller disparities for those with a disability, as a consequence of loss of income both at the bottom and the top of the distribution. Persistence in poverty for people with severe disability increased, while persistence in wealth decreased. In addition, the probability of moving from wealthy to poor conditions has increased for people with disabilities, whereas the opposite has occurred for non-disabled persons.