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The Effect of Disability Insurance Payments on Beneficiaries’ Earnings

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  • Alexander Gelber
  • Timothy Moore
  • Alexander Strand

Abstract

A crucial issue in studying social insurance programs is whether they affect work decisions through income or substitution effects. We examine this in the context of U.S. Social Security Disability Insurance (DI), one of the largest social insurance programs in the U.S. The formula linking DI payments to past earnings has discontinuous changes in the marginal replacement rate that allow us to use a regression kink design to estimate the effect of payment size on earnings. Using Social Security Administration data on all new DI beneficiaries from 2001 to 2007, we document a robust income effect of DI payments on earnings. Our preferred estimate is that an increase in DI payments of one dollar causes an average decrease in beneficiaries’ earnings of twenty cents. This suggests that the income effect represents an important factor in driving DI-induced reductions in earnings.

Suggested Citation

  • Alexander Gelber & Timothy Moore & Alexander Strand, 2016. "The Effect of Disability Insurance Payments on Beneficiaries’ Earnings," NBER Working Papers 21851, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:21851
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    More about this item

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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