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The Impact of Disability Benefits on Labor Supply: Evidence from the VA's Disability Compensation Program

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  • David H. Autor
  • Mark Duggan
  • Kyle Greenberg
  • David S. Lyle

Abstract

Combining administrative data from the U.S. Army, Department of Veterans Affairs (VA) and the U.S. Social Security Administration, we analyze the effect of the VA’s Disability Compensation (DC) program on veterans’ labor force participation and earnings. The largely unstudied Disability Compensation program currently provides income and health insurance to almost four million veterans of military service who suffer service-connected disabilities. We study a unique policy change, the 2001 Agent Orange decision, which expanded DC eligibility for Vietnam veterans who had served in-theatre to a broader set of conditions such as type 2 diabetes. Exploiting the fact that the Agent Orange policy excluded Vietnam era veterans who did not serve in-theatre, we assess the causal effects of DC eligibility by contrasting the outcomes of these two Vietnam-era veteran groups. The Agent Orange policy catalyzed a sharp increase in DC enrollment among veterans who served in-theatre, raising the share receiving benefits by five percentage points over five years. Disability ratings and payments rose rapidly among those newly enrolled, with average annual non-taxed federal transfer payments increasing to $17K within five years. We estimate that benefits receipt reduced labor force participation by 18 percentage points among veterans enrolled due to the policy, though measured income net of transfer benefits rose on average. Consistent with the relatively advanced age and diminished health of Vietnam era veterans in this period, we estimate labor force participation elasticities that are somewhat higher than among the general population.

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  • David H. Autor & Mark Duggan & Kyle Greenberg & David S. Lyle, 2015. "The Impact of Disability Benefits on Labor Supply: Evidence from the VA's Disability Compensation Program," NBER Working Papers 21144, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21144
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    Cited by:

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    3. Seibold, Arthur & Seitz, Sebastian & Siegloch, Sebastian, 2022. "Privatizing disability insurance," ZEW Discussion Papers 22-010, ZEW - Leibniz Centre for European Economic Research.
    4. Francisco Perez‐Arce & María J. Prados, 2021. "The Decline In The U.S. Labor Force Participation Rate: A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 35(2), pages 615-652, April.
    5. Koning, Pierre & van Sonsbeek, Jan-Maarten, 2017. "Making disability work? The effects of financial incentives on partially disabled workers," Labour Economics, Elsevier, vol. 47(C), pages 202-215.
    6. Kadir Atalay & Garry F. Barrett & Peter Siminski, 2019. "Pension incentives and the joint retirement of couples: evidence from two natural experiments," Journal of Population Economics, Springer;European Society for Population Economics, vol. 32(3), pages 735-767, July.
    7. Katharine G. Abraham & Melissa S. Kearney, 2020. "Explaining the Decline in the US Employment-to-Population Ratio: A Review of the Evidence," Journal of Economic Literature, American Economic Association, vol. 58(3), pages 585-643, September.
    8. 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.
    9. Courtney Coile & Mark Duggan & Audrey Guo, 2015. "Veterans' Labor Force Participation: What Role Does the VA's Disability Compensation Program Play?," American Economic Review, American Economic Association, vol. 105(5), pages 131-136, May.
    10. Michael J. Böhm & Christian Siegel, 2021. "Make Yourselves Scarce: The Effect Of Demographic Change On The Relative Wages And Employment Rates Of Experienced Workers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(4), pages 1537-1568, November.
    11. Masanori Kuroki, 2019. "The missing obese men? Labour force participation and obesity among prime-age men in the United States," Journal of Population Research, Springer, vol. 36(1), pages 65-80, March.
    12. Courtney Coile & Mark Duggan & Audrey Guo, 2021. "To Work for Yourself, for Others, or Not at All? How Disability Benefits Affect the Employment Decisions of Older Veterans," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 40(3), pages 686-714, June.
    13. Francisco Perez-Arce & Maria J. Prados & Tarra Kohli, 2018. "The Decline in the U.S. Labor Force Participation Rate," Working Papers wp385, University of Michigan, Michigan Retirement Research Center.
    14. Resul Cesur & Joseph J. Sabia & Erdal Tekin, 2020. "Post-9/11 War Deployments Increased Crime among Veterans," NBER Working Papers 27279, National Bureau of Economic Research, Inc.
    15. Axel Börsch-Supan & Tabea Bucher-Koenen & Felizia Hanemann, 2018. "Early Determinants of Work Disability in an International Perspective," NBER Working Papers 25142, National Bureau of Economic Research, Inc.
    16. Sylvain Chareyron & Naomie Mahmoudi, 2022. "The effects of disability benefits on the employment of low-skilled youth: Evidence from France," Erudite Working Paper 2022-09, Erudite.
    17. René Böheim & Michael Topf, 2020. "Unearned income and labor supply: Evidence from survivor pensions in Austria," Economics working papers 2020-27, Department of Economics, Johannes Kepler University Linz, Austria.
    18. Michael S. Kofoed & Wyatt J. Frasier, 2019. "[Job] Locked and [Un]loaded: The Effect of the Affordable Care Act Dependency Mandate on Reenlistment in the U.S. Army," Upjohn Working Papers 19-300, W.E. Upjohn Institute for Employment Research.
    19. Cesur, Resul & Freidman, Travis & Sabia, Joseph J., 2020. "War, traumatic health shocks, and religiosity," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 475-502.
    20. Chiara Dal Bianco, 2019. "Labour Supply and Welfare Effects of Disability Insurance: A Survey," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 5(1), pages 161-189, March.
    21. Barbara Broadway & Duncan McVicar, 2021. "Reducing the Generosity and Increasing the Conditionality of Welfare Benefits for People with Disability: “Turning the Supertanker” or “Squeezing the Balloon”?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(3), pages 848-873, July.
    22. Jonas Meier, 2020. "Multivariate Distribution Regression," Diskussionsschriften dp2023, Universitaet Bern, Departement Volkswirtschaft.
    23. Axel Börsch-Supan & Tabea Bucher-Koenen & Felizia Hanemann, 2020. "Early Determinants of Work Disability in an International Perspective," Demography, Springer;Population Association of America (PAA), vol. 57(5), pages 1853-1879, October.
    24. Michael Levere, "undated". "The Labor Market Consequences of Receiving Disability Benefits During Childhood," Mathematica Policy Research Reports 4a4b6e2d970c4e669ba5f4126, Mathematica Policy Research.

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    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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