IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Disability, Earnings, Income and Consumption

  • Bruce D. Meyer
  • Wallace K.C. Mok

Using longitudinal data for 1968-2009 for male household heads, we determine the prevalence of pre- retirement age disability and its association with a wide range of outcomes, including earnings, income, and consumption. We then employ some of these quantities in the optimal social insurance framework of Chetty (2006) to study current compensation for the disabled. Six of our findings stand out. First, disability rates are high. We divide the disabled along two dimensions based on the persistence and severity of their work-limiting condition. We estimate that a person reaching age 50 has a 36 percent chance of having been disabled at least temporarily once during his working years, and a 9 percent chance that he has begun a chronic and severe disability. Second, the economic consequences of disability are frequently profound. Ten years after disability onset, a person with a chronic and severe disability on average experiences a 79 percent decline in earnings, a 35 percent decline in after-tax income, a 24 percent decline in food and housing consumption and a 22 percent decline in food consumption. Third, economic circumstances differ sharply across disability groups. The outcome decline for the chronically and severely disabled is often more than twice as large as that for the average disabled head. Fourth, our findings show the partial and incomplete roles that individual savings, family support and social insurance play in reducing the consumption drop that follows disability. Fifth, time use and detailed consumption data further indicate that disability is associated with a decline in well-being. Sixth, using the quantities we have estimated, we provide the range of behavioral elasticities and preference parameters consistent with current disability compensation being optimal within the Chetty framework.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w18869.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18869.

as
in new window

Length:
Date of creation: Mar 2013
Date of revision:
Publication status: Forthcoming: Disability, Earnings, Income and Consumption , Bruce Meyer, Wallace K. C. Mok. in Social Insurance Programs (Trans-Atlantic Public Economic Seminar - TAPES) , Gordon, Peichl, and Poterba. 2016
Handle: RePEc:nbr:nberwo:18869
Note: AG HC HE LS PE
Contact details of provider: Postal:
National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.

Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Karen E. Dynan, 1993. "How prudent are consumers?," Working Paper Series / Economic Activity Section 135, Board of Governors of the Federal Reserve System (U.S.).
  2. Hamish Low & Luigi Pistaferri, 2010. "Disability Risk, Disability Insurance and Life Cycle Behavior," NBER Working Papers 15962, National Bureau of Economic Research, Inc.
  3. Kerwin Kofi Charles, 2003. "The Longitudinal Structure of Earnings Losses among Work-Limited Disabled Workers," Journal of Human Resources, University of Wisconsin Press, vol. 38(3).
  4. Richard V. Burkhauser & Mary C. Daly & Andrew J. Houtenville & Nigar Nargis, 2002. "Self-reported work limitation data: what they can and cannot tell us," Working Paper Series 2002-22, Federal Reserve Bank of San Francisco.
  5. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1104-13, December.
  6. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1992. "Earnings losses of displaced workers," Working Paper Series, Macroeconomic Issues 92-28, Federal Reserve Bank of Chicago.
  7. Wallace K. C. Mok & Bruce D. Meyer & Kerwin Kofi Charles & Alexandra C. Achen, 2008. "A Note on "The Longitudinal Structure of Earnings Losses among Work-Limited Disabled Workers"," Journal of Human Resources, University of Wisconsin Press, vol. 43(3), pages 721-728.
  8. Finkelstein, Amy & Luttmer, Erzo F. P. & Notowidigdo, Matthew J., 2008. "What Good Is Wealth without Health? The Effect of Health on the Marginal Utility of Consumption," Working Paper Series rwp08-036, Harvard University, John F. Kennedy School of Government.
  9. Chetty, Raj, 2006. "A general formula for the optimal level of social insurance," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1879-1901, November.
  10. Alma Cohen & Liran Einav, 2007. "Estimating Risk Preferences from Deductible Choice," American Economic Review, American Economic Association, vol. 97(3), pages 745-788, June.
  11. 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 532-41, June.
  12. Brent Kreider, 1999. "Latent Work Disability and Reporting Bias," Journal of Human Resources, University of Wisconsin Press, vol. 34(4), pages 734-769.
  13. Jonathan Gruber, 2000. "Disability Insurance Benefits and Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1162-1183, December.
  14. Cogley, Timothy, 2002. "Idiosyncratic risk and the equity premium: evidence from the consumer expenditure survey," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 309-334, March.
  15. Altug, Sumru & Miller, Robert A, 1990. "Household Choices in Equilibrium," Econometrica, Econometric Society, vol. 58(3), pages 543-70, May.
  16. Oswald, Andrew J. & Powdthavee, Nattavudh, 2008. "Does happiness adapt? A longitudinal study of disability with implications for economists and judges," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1061-1077, June.
  17. Thomas DeLeire, 2000. "The Wage and Employment Effects of the Americans with Disabilities Act," Journal of Human Resources, University of Wisconsin Press, vol. 35(4), pages 693-715.
  18. Richard M. Scheffler & George Iden, 1974. "The Effect of Disability on Labor Supply," ILR Review, Cornell University, ILR School, vol. 28(1), pages 122-132, October.
  19. Parsons, Donald O, 1991. "The Health and Earnings of Rejected Disability Insurance Applicants: Comment," American Economic Review, American Economic Association, vol. 81(5), pages 1419-26, December.
  20. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  21. Kreider, Brent & Pepper, John V., 2007. "Disability and Employment: Reevaluating the Evidence in Light of Reporting Errors," Journal of the American Statistical Association, American Statistical Association, vol. 102, pages 432-441, June.
  22. Daron Acemoglu & Joshua D. Angrist, 2001. "Consequences of Employment Protection? The Case of the Americans with Disabilities Act," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 915-957, October.
  23. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 1997. "What Accounts for the Variation in Retirement Wealth Among U.S. Households?," Working Papers 97035, Stanford University, Department of Economics.
  24. Bound, John & Cullen, Julie Berry & Nichols, Austin & Schmidt, Lucie, 2004. "The welfare implications of increasing disability insurance benefit generosity," Journal of Public Economics, Elsevier, vol. 88(12), pages 2487-2514, December.
  25. Bruce D. Meyer & Wallace K. C. Mok & James X. Sullivan, 2009. "The Under-Reporting of Transfers in Household Surveys: Its Nature and Consequences," Working Papers 0903, Harris School of Public Policy Studies, University of Chicago.
  26. David H. Autor & Mark G. Duggan, 2006. "The Growth in the Social Security Disability Rolls: A Fiscal Crisis Unfolding," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 71-96, Summer.
  27. Julie L. Hotchkiss, 2003. "The Labor Market Experience of Workers with Disabilities: The ADA and Beyond," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number lmewd, November.
  28. Hugo Benítez-Silva & Moshe Buchinsky & Hiu Man Chan & Sofia Cheidvasser & John Rust, 2004. "How large is the bias in self-reported disability?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 649-670.
  29. Steffan G. Ball & Hamish W. Low, 2009. "Do self-insurance and disability insurance prevent consumption loss on disability?," Finance and Economics Discussion Series 2009-31, Board of Governors of the Federal Reserve System (U.S.).
  30. Thomas DeLeire, 2001. "Changes in Wage Discrimination against People with Disabilities: 1984-93," Journal of Human Resources, University of Wisconsin Press, vol. 36(1), pages 144-158.
  31. Mark Aguiar & Erik Hurst, 2007. "Measuring Trends in Leisure: The Allocation of Time Over Five Decades," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 969-1006.
  32. Perry Singleton, 2009. "Insult to Injury: Disability, Earnings, and Divorce," Working Papers, Center for Retirement Research at Boston College wp2009-25, Center for Retirement Research, revised Nov 2009.
  33. David H. Autor & Mark G. Duggan, 2003. "The Rise in the Disability Rolls and the Decline in Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 157-206.
  34. John Bound & Todd Stinebrickner & Timothy Waidmann, 2007. "Health, Economic Resources and the Work Decisions of Older Men," University of Western Ontario, Economic Policy Research Institute Working Papers 20076, University of Western Ontario, Economic Policy Research Institute.
  35. Dan Black & Kermit Daniel & Seth Sanders, 2002. "The Impact of Economic Conditions on Participation in Disability Programs: Evidence from the Coal Boom and Bust," American Economic Review, American Economic Association, vol. 92(1), pages 27-50, March.
  36. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-57, December.
  37. Bruce D. Meyer & James X. Sullivan, 2011. "Viewpoint: Further results on measuring the well-being of the poor using income and consumption," Canadian Journal of Economics, Canadian Economics Association, vol. 44(1), pages 52-87, February.
  38. 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.
  39. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April.
  40. Melvin Stephens, 2001. "The Long-Run Consumption Effects Of Earnings Shocks," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 28-36, February.
  41. Steven Stern, 1989. "Measuring the Effect of Disability on Labor Force Participation," Journal of Human Resources, University of Wisconsin Press, vol. 24(3), pages 361-395.
  42. Kerwin Kofi Charles & Melvin Stephens, 2004. "Job Displacement, Disability, and Divorce," Journal of Labor Economics, University of Chicago Press, vol. 22(2), pages 489-522, April.
  43. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1993. "Long-term earnings losses of high-seniority displaced workers," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-20.
  44. 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.
  45. Bruce Meyer, 2002. "Unemployment and workers' compensation programmes: rationale, design, labour supply and income support ," Fiscal Studies, Institute for Fiscal Studies, vol. 23(1), pages 1-49, March.
  46. Susan Dynarski & Jonathan Gruber, 1997. "Can Families Smooth Variable Earnings?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 229-303.
  47. 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.
  48. Robert Haveman & Barbara Wolfe, 1990. "The Economic Well-Being of the Disabled: 1962-84," Journal of Human Resources, University of Wisconsin Press, vol. 25(1), pages 32-54.
  49. Sheshinski, E. & Diamond, P., 1992. "Economic Aspects of Optimal Disability Benefits," Working papers 92-5, Massachusetts Institute of Technology (MIT), Department of Economics.
  50. Amitabh Chandra & Andrew A. Samwick, 2005. "Disability Risk and the Value of Disability Insurance," NBER Working Papers 11605, National Bureau of Economic Research, Inc.
  51. Bound, John, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," American Economic Review, American Economic Association, vol. 79(3), pages 482-503, June.
  52. 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.
  53. John Bound, 1991. "Self-Reported Versus Objective Measures of Health in Retirement Models," Journal of Human Resources, University of Wisconsin Press, vol. 26(1), pages 106-138.
  54. Mark Aguiar & Erik Hurst, 2005. "Consumption versus Expenditure," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 919-948, October.
  55. 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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:18869. 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: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.