The Welfare Implications of Increasing DI Benefit Generosity
The empirical literature on DI has primarily focused on the impact of program parameters on caseload growth or reduced labor force attachment. The focus on the efficiency costs of DI provides a misleading view of the social desirability of the program itself and of the adequacy of benefit levels. In order to provide a more comprehensive view, we develop a framework that allows us to simulate the benefits as well as the costs associated with a marginal increase in benefit generosity using a representative crosssectional sample of the population. Using the 1991 March CPS, we estimate the total cost of providing an additional $1 of income to current DI recipients to be $1.42. While the load factor due to moral hazard is fairly high, we demonstrate that it is moderate enough that representative workers should be willing to “buy” additional insurance through reduced take-home pay at this price. The reform looks less attractive, however, once the financial benefits and costs are distributed across individuals in the sample. Fist, the average implicit price of an additional dollar of insurance is actually much higher than $1.42 for all but the least educated category of workers due to the redistribute nature of the program. We predict that the reform leads to a net welfare loss for these more highly educated groups, regardless of the level of risk aversion. Second, despite an average implicit price of less than $1, the expected utility gain also turns negative for high school dropouts under high levels of risk aversion. Second, despite an average implicit price of less than $1, the expected utility gain also turns negative for high school dropouts under high levels of risk aversion. This counterintuitive finding arises since the utility calculation weighs low income individuals more heavily as risk aversion increases and individuals with income below the floor provided to current DI recipients help to finance the benefit increase.
|Date of creation:||Jul 2002|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (734) 615-0422
Fax: (734) 647-4575
Web page: http://www.mrrc.isr.umich.edu/publications/papers/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John Bound & Timothy Waidmann, 2002. "Accounting for Recent Declines in Employment Rates among Working-Aged Men and Women with Disabilities," Journal of Human Resources, University of Wisconsin Press, vol. 37(2), pages 231-250.
- Jonathan Gruber, 2000.
"Disability Insurance Benefits and Labor Supply,"
Journal of Political Economy,
University of Chicago Press, vol. 108(6), pages 1162-1183, December.
- Richard V. Burkhauser & Robert H. Haveman & Barbara L. Wolfe, 1993.
"How people with disabilities fare when public policies change,"
Journal of Policy Analysis and Management,
John Wiley & Sons, Ltd., vol. 12(2), pages 251-269.
- R. V. Burkhauser & R. H. Haveman & B. L. Wolfe, . "How people with disabilities fare when public policies change," Institute for Research on Poverty Discussion Papers 974-92, University of Wisconsin Institute for Research on Poverty.
- Cullen, Julie Berry & Gruber, Jonathan, 2000. "Does Unemployment Insurance Crowd Out Spousal Labor Supply?," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 546-72, July.
- Diamond, Peter & Sheshinski, Eytan, 1995.
"Economic aspects of optimal disability benefits,"
Journal of Public Economics,
Elsevier, vol. 57(1), pages 1-23, May.
- John Bound & Timothy Waidmann, 2000. "Accounting for Recent Declines in Employment Rates among the Working-Aged Disabled," NBER Working Papers 7975, National Bureau of Economic Research, Inc.
- David H. Autor & Mark G. Duggan, 2003. "The Rise In The Disability Rolls And The Decline In Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 157-205, February.
- Bound, John & Waidmann, Timothy, 1992. "Disability Transfers, Self-Reported Health, and the Labor Force Attachment of Older Men: Evidence from the Historical Record," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1393-419, November.
- Kreider, Brent, 1999.
"Social Security Disability Insurance: Applications, Awards, and Lifetime Income Flows,"
Staff General Research Papers
5188, Iowa State University, Department of Economics.
- Kreider, Brent, 1999. "Social Security Disability Insurance: Applications, Awards, and Lifetime Income Flows," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 784-827, October.
- Timothy Waidmann & John Bound & Michael Schoenbaum, 1995. "The Illusion of Failure: Trends in the Self-Reported Health of the U.S. Elderly," NBER Working Papers 5017, National Bureau of Economic Research, Inc.
- Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
- Janet Currie & Brigitte C. Madrian, 1998.
"Health, Health Insurance and the Labor Market,"
JCPR Working Papers
27, Northwestern University/University of Chicago Joint Center for Poverty Research.
- Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
- Patricia M. Anderson & Bruce D. Meyer, .
"The Incidence of a Firm-Varying Payroll Tax: The Case of Unemployment Insurance,"
IPR working papers
95-23, Institute for Policy Resarch at Northwestern University.
- Patricia M. Anderson & Bruce D. Meyer, 1995. "The Incidence of a Firm-Varying Payroll Tax: The Case of Unemployment Insurance," NBER Working Papers 5201, National Bureau of Economic Research, Inc.
- Diamond, P. A. & Mirrlees, J. A., 1978.
"A model of social insurance with variable retirement,"
Journal of Public Economics,
Elsevier, vol. 10(3), pages 295-336, December.
- P. A. Diamond & J. A. Mirrlees, 1977. "A Model of Social Insurance With Variable Retirement," Working papers 210, Massachusetts Institute of Technology (MIT), Department of Economics.
- Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
- Bound, John & Burkhauser, Richard V., 1999. "Economic analysis of transfer programs targeted on people with disabilities," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 51, pages 3417-3528 Elsevier.
- Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-41, June.
When requesting a correction, please mention this item's handle: RePEc:mrr:papers:wp024. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (MRRC Administrator)
If references are entirely missing, you can add them using this form.