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The Effect of Disability Insurance Payments on Beneficiaries' Earnings

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  • Alexander Gelber
  • Timothy J. Moore
  • Alexander Strand

Abstract

A crucial issue is whether social insurance affects work decisions through income or substitution effects. We examine this in the context of US Social Security Disability Insurance (DI), exploiting discontinuous changes in the benefit formula with a regression kink design to estimate the income effect of payments on earnings and employment. Using administrative data on all new DI beneficiaries from 2001 to 2007, our preferred estimate is that an increase in DI payments of $1 causes an average decrease in beneficiaries' earnings of $0.20 and that annual employment rates decrease by 1.3 percentage points per $1,000 of DI payments. These findings suggest that the income effect accounts for a majority of DI-induced reductions in earnings.

Suggested Citation

  • Alexander Gelber & Timothy J. Moore & Alexander Strand, 2017. "The Effect of Disability Insurance Payments on Beneficiaries' Earnings," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 229-261, August.
  • Handle: RePEc:aea:aejpol:v:9:y:2017:i:3:p:229-61
    Note: DOI: 10.1257/pol.20160014
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    Cited by:

    1. Weber, Andrea & Manoli, Dayanand, 2016. "The Effects of Increasing the Early Retirement Age on Employment of Older Workers," Annual Conference 2016 (Augsburg): Demographic Change 145549, Verein für Socialpolitik / German Economic Association.
    2. Dayanand S. Manoli & Andrea Weber, 2016. "The Effects of the Early Retirement Age on Retirement Decisions," NBER Working Papers 22561, National Bureau of Economic Research, Inc.
    3. Manasi Deshpande, 2016. "Does Welfare Inhibit Success? The Long-Term Effects of Removing Low-Income Youth from the Disability Rolls," American Economic Review, American Economic Association, vol. 106(11), pages 3300-3330, November.
    4. Hansen, Benjamin & Nguyen, Tuan & Waddell, Glen R., 2017. "Benefit Generosity and Injury Duration: Quasi-Experimental Evidence from Regression Kinks," IZA Discussion Papers 10621, Institute for the Study of Labor (IZA).
    5. Bratsberg, Bernt & Raaum, Oddbjørn & Røed, Knut, 2018. "Immigrant Responses to Social Insurance Generosity," IZA Discussion Papers 11482, Institute for the Study of Labor (IZA).
    6. George J. Borjas & David J.G. Slusky, 2018. "Health, Employment, and Disability: Implications from the Undocumented Population," NBER Working Papers 24504, National Bureau of Economic Research, Inc.
    7. Bana, Sarah & Bedard, Kelly & Rossin-Slater, Maya, 2018. "The Impacts of Paid Family Leave Benefits: Regression Kink Evidence from California Administrative Data," IZA Discussion Papers 11381, Institute for the Study of Labor (IZA).
    8. Katharine G. Abraham & Melissa S. Kearney, 2018. "Explaining the Decline in the U.S. Employment-to-Population Ratio: A Review of the Evidence," NBER Working Papers 24333, National Bureau of Economic Research, Inc.
    9. Lukas Mayr & Dominik Sachs & Fabian Kindermann, 2017. "Inheritance Taxation and Wealth Effects on the Labor Supply of Heirs," 2017 Meeting Papers 1046, Society for Economic Dynamics.
    10. Sarah Bana & Kelly Bedard & Maya Rossin-Slater, 2018. "The Impacts of Paid Family Leave Benefits: Regression Kink Evidence from California Administrative Data," NBER Working Papers 24438, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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