A worker’s decision whether to apply for public transfers may depend not only on his expected level of foregone labor earnings but also on his degree of uncertainty about such earnings. This paper provides theory and evidence about the effects of earnings and eligibility uncertainty on participation decisions. The application rate to the Social Security Disability Insurance program is estimated to be about 15 percent higher than it would be in the absence of earnings risk. As an application to tax policy, optimal marginal wage tax rates may be higher than indicated in previous analyses involving wage uncertainty.
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number
5189.
Length: Date of creation: 01 Mar 2002 Date of revision: Publication status: Published in Journal of Labor Economics, October 1998, pp. 848-877. Handle: RePEc:isu:genres:5189
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