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The Impact of Disability Benefits on Labor Supply: Evidence for the VA’s Disability Compensation Program

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  • David Autor

    (Massachusetts Institute of Technology and The National Bureau of Economic Research)

  • Mark Duggan

    (Stanford University and The National Bureau of Economic Research)

  • Kyle Greenberg

    (Massachusetts Institute of Technology and United States Military Academy)

  • David Lyle

    (United States Military Academy)

Abstract

We analyze the labor market effects of the U.S. Department of Veterans Affairs’ Disability Compensation (DC) program. The largely unstudied DC program currently provides income and health insurance to approximately four million veterans of military service who have service-connected disabilities. We study a unique policy change, the 2001 Agent Orange decision, which expanded eligibility for DC benefits to a broader set of covered conditions — in particular, type II diabetes — to Vietnam veterans who had served in-theater (with ‘Boots on the Ground’ or BOG). Notably, the Agent Orange policy excluded Vietnam era veterans who did not serve in-theatre (‘Not on Ground’ or NOG), thus allowing us to assess the causal effects of DC eligibility by contrasting the outcomes of BOG and NOG veterans. Our results indicate that the policy-induced increase in DC enrollment reduced labor force participation by 18 percentage points among BOG veterans who enrolled in the DC program as a result of the policy change. We also find evidence of program spillovers, with DC recipients significantly more likely to qualify for Social Security Disability Insurance benefits.

Suggested Citation

  • David Autor & Mark Duggan & Kyle Greenberg & David Lyle, 2014. "The Impact of Disability Benefits on Labor Supply: Evidence for the VA’s Disability Compensation Program," Discussion Papers 14-010, Stanford Institute for Economic Policy Research.
    • Handle: RePEc:sip:dpaper:14-010
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    Cited by:

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    3. 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.
    4. Böheim, René & Topf, Michael, 2020. "Unearned Income and Labor Supply: Evidence from Survivor Pensions in Austria," IZA Discussion Papers 13994, Institute of Labor Economics (IZA).
    5. 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.
    6. 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.
    7. Gordon B. Dahl & Anne C. Gielen, 2021. "Intergenerational Spillovers in Disability Insurance," American Economic Journal: Applied Economics, American Economic Association, vol. 13(2), pages 116-150, April.
    8. 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.
    9. Ivanov, Boris & Pfeiffer, Friedhelm & Pohlan, Laura, 2020. "Do job creation schemes improve the social integration and well-being of the long-term unemployed?," Labour Economics, Elsevier, vol. 64(C).
    10. 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.
    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. 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.
    14. Jonas Meier, 2020. "Multivariate Distribution Regression," Diskussionsschriften dp2023, Universitaet Bern, Departement Volkswirtschaft.
    15. 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.
    16. 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.
    17. 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.
    18. 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.
    19. 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.
    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. 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.
    22. Michael Levere, "undated". "The Labor Market Consequences of Receiving Disability Benefits During Childhood," Mathematica Policy Research Reports 4a4b6e2d970c4e669ba5f4126, Mathematica Policy Research.
    23. 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.
    24. 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.

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    JEL classification:

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

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