Does Disability Insurance Receipt Discourage Work? Using Examiner Assignment to Estimate Causal Effects of SSDI Receipt
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Abstract
We present the first causal estimates of the effect of Social Security Disability Insurance benefit receipt on labor supply using all program applicants. We use new administrative data to match applications to disability examiners, and exploit variation in examiners’ allowance rates as an instrument for benefit receipt. We find that among the estimated 23% of applicants on the margin of program entry, employment would have been 28 percentage points higher had they not received benefits. The effect is heterogeneous, ranging from no effect for those with more severe impairments to 50 percentage points for entrants with relatively less severe impairments.
Key Findings
- Determining the impact of SSDI on the employment and earnings of beneficiaries has been difficult since unobserved severity is likely positively correlated with SSDI receipt.
- We take advantage of a unique workload management database to match SSDI applicants to disability examiners, and use systematic variation in allowance rates by disability examiner that is uncorrelated with individual applicants’ severity in order to estimate the labor supply effects of SSDI.
- Among the estimated 23 percent of applicants on the margin of program entry, employment would be on average 28 percent greater in the absence of SSDI benefit receipt. The applicant’s likelihood of engaging in substantial gainful activity as defined by the SSDI program would be on average 19 percent higher, and he or she would earn on average $3,781 more per year in the absence of SSDI benefits.
- The disincentive effect of SSDI on employment varies across individuals with impairments of different degrees of unobservable severity, ranging from no effect for those with more severe impairments to 50 percentage points for those with less severe impairments.
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Paper ID
WP 2010-241Publication Type
Working Paper