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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- Bound, John, 1989.
"The Health and Earnings of Rejected Disability Insurance Applicants,"
American Economic Review,
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- John Bound, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," NBER Working Papers 2816, National Bureau of Economic Research, Inc.
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06-05, Center for Economic Studies, U.S. Census Bureau.
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- 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.
- Gruber, Jonathan & Kubik, Jeffrey D., 1997. "Disability insurance rejection rates and the labor supply of older workers," Journal of Public Economics, Elsevier, vol. 64(1), pages 1-23, April.
- Nicole Maestas & Xiaoyan Li, 2006. "Discouraged Workers? Job Search Outcomes of Older Workers," Working Papers wp133, University of Michigan, Michigan Retirement Research Center.
- Song, Jae G. & Manchester, Joyce, 2007. "New evidence on earnings and benefit claims following changes in the retirement earnings test in 2000," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 669-700, April.
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