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Does Disability Insurance Receipt Discourage Work? Using Examiner Assignment to Estimate Causal Effects of SSDI Receipt

  • Nicole Maestas
  • Kathleen J. Mullen
  • Alexander Strand

The authors present the first estimates of the causal effects of Social Security Disability Insurance (SSDI) receipt on labor supply that are generalizable to the entire population of program entrants in the present day system. They take advantage of a unique workload management database to match SSDI applicants to disability examiners, and use natural variation in examinersÕ allowance rates to estimate the labor supply effects of SSDI. Because applicants are randomly assigned to examiners (conditional on observable characteristics), examiner specific allowance rates can be used to instrument for the allowance decision in a labor supply equation contrasting denied vs. allowed applicants. They find that the labor force participation rate of the marginal entrant would be on average 21 percentage points greater in the absence of SSDI benefit receipt. His or her likelihood of engaging in substantial gainful activity as defined by the SSDI program would be on average 13 percentage points higher, and he or she would earn $1,600 to $2,600 more per year on average in the absence of SSDI benefit receipt. The marginal entrant is likely to have a mental impairment, be young, and have low pre-onset earnings. Importantly, the disincentive effect varies across individuals with impairments of different degrees of unobservable severity, ranging from a low of 10 percentage points for those with more severe impairments to a high of 60 percentage points for entrants with relatively less severe impairments.

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Paper provided by RAND Corporation in its series Working Papers with number 853.

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Length: 50 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:ran:wpaper:853
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  1. Till von Wachter & Jae Song & Joyce Manchester, 2011. "Trends in Employment and Earnings of Allowed and Rejected Applicants to the Social Security Disability Insurance Program," American Economic Review, American Economic Association, vol. 101(7), pages 3308-29, December.
  2. Eric French & Jae Song, 2009. "The effect of disability insurance receipt on labor supply," Working Paper Series WP-09-05, Federal Reserve Bank of Chicago.
  3. James J. Heckman & Sergio Urzua & Edward J. Vytlacil, 2006. "Understanding Instrumental Variables in Models with Essential Heterogeneity," NBER Working Papers 12574, National Bureau of Economic Research, Inc.
  4. Chen, Susan & van der Klaauw, Wilbert, 2008. "The work disincentive effects of the disability insurance program in the 1990s," Journal of Econometrics, Elsevier, vol. 142(2), pages 757-784, February.
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