The Effect of Disability Insurance Payments on Beneficiaries’ Earnings

Alexander Gelber (), Timothy Moore and Alexander Strand

No 21851, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: H31 I18 J14 J22 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-ias and nep-pbe
Note: AG EH LS PE
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Published as Alexander Gelber & Timothy J. Moore & Alexander Strand, 2017. "The Effect of Disability Insurance Payments on Beneficiaries' Earnings," American Economic Journal: Economic Policy, vol 9(3), pages 229-261.

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Journal Article: The Effect of Disability Insurance Payments on Beneficiaries' Earnings (2017)
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