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Spousal Labor Supply Responses to Government Programs: Evidence from the Disability Insurance Program

  • Susan E. Chen

    (University of Alabama, Tuscaloosa)

Disability is a permanent unexpected shock to labor supply which according to the theory of the added worker effect should induce a large spousal labor supply response. The Disability Insurance (DI) program is designed to mitigate the income lost due to disability. To the extent that it does this, it can crowd out the spousal labor supply response predicted by the added worker effect theory. Using a unique data that matches administrative data combining worker’s earnings histories and disability insurance applications, this study finds that DI crowds out spousal labor force participation by 6 percent and the displacement spans multiple years. The estimated crowd-out effects are also larger for younger wife cohorts and cohorts with particular types of impairments such as musculoskeletal disease.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp261.pdf
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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp261.

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Length: 36 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:mrr:papers:wp261
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  1. Till von Wachter & Jae Song & Joyce Manchester, 2011. "Trends in Employment and Earnings of Allowed and Rejected Applicants to the Social Security Disability Insurance Program," American Economic Review, American Economic Association, vol. 101(7), pages 3308-29, December.
  2. John Bound & Richard Burkhauser & Austin Nichols, 2001. "Tracking the Household Income of SSDI and SSI Applicants," Working Papers wp009, University of Michigan, Michigan Retirement Research Center.
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