The Labor Supply Effects of Disability Insurance Work Disincentives: Evidence from the Automatic Conversion to Retirement Benefits at Full Retirement Age
The Social Security Disability Insurance (DI) program imposes strong work restrictions on beneficiaries; however, the causal effect of the work disincentives on labor supply has been difficult to estimate. We take a new look at this question by exploiting the fact that DI benefits are payable only until full retirement age (FRA), at which point they are converted to retired worker benefits, and the program’s implicit high marginal tax rate on earnings is abruptly relaxed. Using a quasiexperimental research design, we examine whether the DI work disincentives are binding by comparing changes in labor force participation rates before and after the FRA for DI beneficiaries and non-beneficiaries. We find a relative increase in labor force participation at FRA for DI beneficiaries of 10.4 percentage points, and argue that this is likely a lower bound estimate on the labor supply disincentive effects of the DI program.
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- Chen, Susan & van der Klaauw, Wilbert, 2008.
"The work disincentive effects of the disability insurance program in the 1990s,"
Journal of Econometrics,
Elsevier, vol. 142(2), pages 757-784, February.
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- John Bound & Timothy Waidmann, 1992. "Disability Transfers, Self-Reported Health, and the Labor Force Attachment of Older Men: Evidence from the Historical Record," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1393-1419.
- Nicole Maestas & Xiaoyan Li, 2006. "Discouraged Workers? Job Search Outcomes of Older Workers," Working Papers wp133, University of Michigan, Michigan Retirement Research Center.
- 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. Full references (including those not matched with items on IDEAS)
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