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Disability, Earnings, Income and Consumption

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

Abstract

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.

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  • Bruce D. Meyer & Wallace K.C. Mok, 2013. "Disability, Earnings, Income and Consumption," NBER Working Papers 18869, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18869
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    Cited by:

    1. Hamish Low & Luigi Pistaferri, 2010. "Disability Risk, Disability Insurance and Life Cycle Behavior," NBER Working Papers 15962, National Bureau of Economic Research, Inc.
    2. Stancanelli, Elena G. F., 2014. "Divorcing Upon Retirement: A Regression Discontinuity Study," IZA Discussion Papers 8117, Institute for the Study of Labor (IZA).
    3. Debra L. Brucker & Sophie Mitra & Navena Chaitoo & Joseph Mauro, 2014. "More likely to be poor whatever the measure: persons with disabilities in the U.S," Fordham Economics Discussion Paper Series dp2014-01, Fordham University, Department of Economics.
    4. Jones, Melanie K. & Mavromaras, Kostas G. & Sloane, Peter J. & Wei, Zhang, 2015. "The Dynamic Effect of Disability on Work and Subjective Wellbeing in Australia," IZA Discussion Papers 9609, Institute for the Study of Labor (IZA).
    5. Priyanka Anand & Yonatan Ben-Shalom, 2014. "How Do Working-Age People With Disabilities Spend Their Time? New Evidence From the American Time Use Survey," Demography, Springer;Population Association of America (PAA), vol. 51(6), pages 1977-1998, December.
    6. Andreas Ravndal Kostøl & Magne Mogstad, 2015. "Earnings, Disposable Income, and Consumption of Allowed and Rejected Disability Insurance Applicants," American Economic Review, American Economic Association, vol. 105(5), pages 137-141, May.
    7. Moore, Timothy J., 2015. "The employment effects of terminating disability benefits," Journal of Public Economics, Elsevier, vol. 124(C), pages 30-43.
    8. Demianova, Anna & Lukiyanova, Anna, 2016. "The impact of disability status on labor supply in Russia," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 44, pages 50-74.
    9. 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.
    10. David Autor & Andreas Ravndal Kostøl & Magne Mogstad & Bradley Setzler, 2017. "Disability benefits, consumption insurance, and household labor supply," Working Paper 2017/16, Norges Bank.
    11. David Autor & Mark Duggan & Jonathan Gruber, 2014. "Moral Hazard and Claims Deterrence in Private Disability Insurance," American Economic Journal: Applied Economics, American Economic Association, vol. 6(4), pages 110-141, October.
    12. Albert Park & Shu Cai, 2015. "Permanent Income and Subjective Well-Being," HKUST IEMS Working Paper Series 2015-08, HKUST Institute for Emerging Market Studies, revised Feb 2015.
    13. Alexander Gelber & Timothy J. Moore & Alexander Strand, 2017. "The Effect of Disability Insurance Payments on Beneficiaries' Earnings," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 229-261, August.
    14. repec:eee:jhecon:v:53:y:2017:i:c:p:38-52 is not listed on IDEAS
    15. Goodstein, Ryan M. & Rhine, Sherrie L.W., 2017. "The effects of bank and nonbank provider locations on household use of financial transaction services," Journal of Banking & Finance, Elsevier, vol. 78(C), pages 91-107.
    16. Perry Singleton, 2012. "Insult to Injury: Disability, Earnings, and Divorce," Journal of Human Resources, University of Wisconsin Press, vol. 47(4), pages 972-990.
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    More about this item

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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