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Labor Supply Incentives and Disincentives for the Disabled

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  • Jonathan S. Leonard

Abstract

The past three decades have witnessed a large and puzzling decline in labor force participation by prime-age males, and a correspondingly large increase in Social Security disability beneficiary roles.This paper reviews the analytical studies that have attempted to determine the causal links between disability, beneficiary status, and labor-force non-participation. Although disability is often thought of as a purely medically determined condition with no labor supply responsiveness to economic factors, models of Social Security disability beneficiary status as an economic decision have had some success in explaining both the growth of the program and the decline in labor force participation. These studies have, however, produced a wide range of estimates of labor supply elasticity, in part because of the difficulty of the underlying econometric problem of estimating the response to two (or more) potential income streams, only one of which is usually observed for any individual.

Suggested Citation

  • Jonathan S. Leonard, 1985. "Labor Supply Incentives and Disincentives for the Disabled," NBER Working Papers 1744, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1744
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    1. Haveman, Robert H. & Wolfe, Barbara L., 1984. "Disability transfers and early retirement: a casual relationship?," Journal of Public Economics, Elsevier, vol. 24(1), pages 47-66, June.
    2. Parsons, Donald O, 1980. "The Decline in Male Labor Force Participation," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 117-134, February.
    3. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters,in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
    4. Halpern, Janice & Hausman, Jerry A., 1986. "Choice under uncertainty: A model of applications for the social security disability insurance program," Journal of Public Economics, Elsevier, vol. 31(2), pages 131-161, November.
    5. Lee, Lung-Fei, 1979. "Identification and Estimation in Binary Choice Models with Limited (Censored) Dependent Variables," Econometrica, Econometric Society, vol. 47(4), pages 977-996, July.
    6. Parsons, Donald O, 1982. "The Male Labour Force Participation Decision: Health, Reported Health, and Economic Incentives," Economica, London School of Economics and Political Science, vol. 49(193), pages 81-91, February.
    7. Jonathan S. Leonard, 1979. "The Social Security Disability Program and Labor Force Participation," NBER Working Papers 0392, National Bureau of Economic Research, Inc.
    8. Parsons, Donald O, 1980. "Racial Trends in Male Labor Force Participation," American Economic Review, American Economic Association, vol. 70(5), pages 911-920, December.
    9. John D. Worrall, 1978. "A Benefit-Cost Analysis of the Vocational Rehabilitation Program," Journal of Human Resources, University of Wisconsin Press, vol. 13(2), pages 285-298.
    10. Danziger, Sheldon & Haveman, Robert & Plotnick, Robert, 1981. "How Income Transfer Programs Affect Work, Savings, and the Income Distribution: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 19(3), pages 975-1028, September.
    11. Parsons, Donald O, 1984. "Disability Insurance and Male Labor Force Participation: A Response," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 542-549, June.
    12. Haveman, Robert H & Wolfe, Barbara L, 1984. "The Decline in Male Labor Force Participation: Comment," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 532-541, June.
    13. Saad Z. Nagi & Linda W. Hadley, 1972. "Disability Behavior: Income Change and Motivation to Work," ILR Review, Cornell University, ILR School, vol. 25(2), pages 223-233, January.
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    Cited by:

    1. R. Haveman & K. Holden & B. Wolfe & P. Smith & K. Wilson, "undated". "The Changing Economic Status of U.S. Disabled Men: Trends and Their Determinants, 1982–1991," Institute for Research on Poverty Discussion Papers 1190-99, University of Wisconsin Institute for Research on Poverty.
    2. Levine, David I., 1997. "Reinventing Disability Policy," Institute for Research on Labor and Employment, Working Paper Series qt7cq715wp, Institute of Industrial Relations, UC Berkeley.
    3. Owen O'Donnell, 1998. "The Effect of Disability on Employment Allowing for Work Incapacity," Studies in Economics 9813, School of Economics, University of Kent.
    4. Jonathan Gruber, 2000. "Disability Insurance Benefits and Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1162-1183, December.
    5. Hoynes, Hilary Williamson & Moffitt, Robert, 1999. "Tax Rates and Work Incentives in the Social Security Disability Insurance Program: Current Law and Alternative Reforms," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(4), pages 623-654, December.
    6. Einar Bowitz, 1997. "Disability benefits, replacement ratios and the labour market. A time series approach," Applied Economics, Taylor & Francis Journals, vol. 29(7), pages 913-923.
    7. Peter Diamond & Jonathan Gruber, 1997. "Social Security and Retirement in the U.S," NBER Working Papers 6097, National Bureau of Economic Research, Inc.
    8. Richard V. Burkhauser & J. S. Butler & Yang-Woo Kim, 1996. "The timing of disability insurance application: a choice-based semiparametric hazard model," Working Papers 1996-005, Federal Reserve Bank of St. Louis.
    9. Robert Haveman & Barbara Wolfe & Fung Mey Huang, 1989. "Disability Status as an Unobservable: Estimates From a Structural Model," NBER Working Papers 2831, National Bureau of Economic Research, Inc.
    10. Jonathan Gruber & Jeffrey D. Kubik, 1994. "Disability Insurance Rejection Rates and the Labor Supply of Older Workers," NBER Working Papers 4941, National Bureau of Economic Research, Inc.
    11. Burkhauser, Richard V. & Butler, J. S. & Gumus, Gulcin, 2003. "Dynamic Modeling of the SSDI Application Timing Decision: The Importance of Policy Variables," IZA Discussion Papers 942, Institute for the Study of Labor (IZA).
    12. Derek Hum & Wayne Simpson, 1996. "Canadians with Disabilities and the Labour Market," Canadian Public Policy, University of Toronto Press, vol. 22(3), pages 287-299, September.

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