Papers Recently and Previously Released by the NBER Retirement and Disability Research Center 2021:1

Recently released papers

NB20-17: The Minimum Wage and Social Security Disability Insurance, by Mark Duggan and Gopi Shah Goda

Abstract: Several factors influence the decision to apply for benefits from the Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) programs, which provided valuable benefits to over 16 million individuals in June 2020. In this study, we examine how changes in the minimum wage affect the number of applications to both programs. We leverage changes in the effective minimum wage across states and over the 2000-2015 time period and control for changes in the unemployment rate, other county-level demographic covariates, county- and year fixed effects, and county-specific linear time trends to control for underlying differences across areas in application rates and their growth over time. While the effect of the minimum wage is positive and statistically significant in our main specification, the effect is economically small: a one dollar increase in the minimum wage increases the total application rate for SSI and SSDI combined by 0.04 percentage points. We find more robust evidence for a relationship between the unemployment rate and the application rate; the effect of a one standard deviation change in the unemployment rate is approximately three times as large as a one standard deviation in the minimum wage.

NB19-14: Social Security and Retirement Around the World: Lessons from a 25-Year International Collaboration, by Courtney Coile, David Wise, Axel Börsch-Supan, Jonathan Gruber, Kevin Milligan, Richard Woodbury, Michael Baker, James Banks, Luc Behaghel, Paul Bingley, Didier Blanchet, Richard Blundell, Michele Boldrín, Antoine Bozio, Agar Brugiavini, Tabea Bucher-Koenen, Raluca Elena Buia, Eve Caroli, Thierry Debrand, Arnaud Dellis, Raphaël Desmet, Klaas de Vos, Peter Diamond, Carl Emmerson, Irene Ferrari, Anne-Lore Fraikin, Mayu Fujii, Pilar Garcia-Gomez, Silvia Garcia-Mandicó, Nicolas Goll, Nabanita Datta Gupta, Sergi Jiménez-Martín, Per Johansson, Paul Johnson, Michael Jørgensen, Alain Jousten, Hendrik Jürges, Malene Kallestrup-Lamb, Adriaan Kalwij, Arie Kapteyn, Simone Kohnz, Lisa Laun, Mathieu Lefebvre, Ronan Mahieu, Giovanni Mastrobuoni, Costas Meghir, Akiko Oishi, Takashi Oshio, Marten Palme, Giacomo Pasini, Peder Pedersen, Louis-Paul Pelé, Franco Peracchi, Sergio Perelman, Pierre Pestieau, Corinne Prost, Simon Rabaté, Johannes Rausch, Muriel Roger, Melika Ben Salem, Tammy Schirle, Reinhold Schnabel, Morten Schuth, Satoshi Shimizutani, Sarah Smith, Jean-Philippe Stijns, Susan Stewart, David Sturrock, Ingemar Svensson, Gemma Tetlow, Lars Thiel, Julie Tréguier, Emiko Usui, Judit Vall-Castelló, Emmanuelle Walraet, Guglielmo Weber, and Naohiro Yashiro

Abstract: This paper details the work of the NBER International Social Security (ISS) Project, a long-term collaboration among researchers in a dozen developed countries, studying relationships between public pension systems and retirement behavior at older ages. The paper finds that differences across countries in pension generosity, early and normal retirement ages, actuarial adjustment for delayed claiming of benefits, and other provisions can create large differences in the incentive to work at older ages. As illustration from early ISS work, the loss of social security wealth (the discounted stream of expected future benefits) by working from the early retirement age to age 69 varied from 1.6 years of earnings in the US and Japan to between 7.2 and 9.2 years of earnings in Belgium, France, Italy and the Netherlands. Aggregated measures of policy incentives in different countries closely correspond to cross-country differences in work behavior at older ages. The various “pathways” to retirement extend well beyond a country’s primary public pension system and may include disability insurance policies, unemployment insurance, and other special early retirement programs. The combined incentive effects of these programs effectively explain age-based patterns of retirement behavior and how they vary across countries. Health-based estimates of work capacity between ages 60 and 64 are broadly similar across the ISS countries studied, yet the share of the population actually working ranges from about 15 to 80 percent. This strongly suggests that it is not differences in health that drive differences in employment at older ages across countries, but rather other factors, such as pension provisions. Of the many policy reforms enacted in every ISS country between 1980 and 2015, more of them have reduced pension generosity and strengthened the incentive to work than the reverse. Thus, these reforms are an important factor influencing the rise in labor force participation at older ages that has occurred since
the mid-1990s.


NB19-Q3: Understanding the Impact of Cash on Hand on the Labor Supply of Disabled Workers, by Kathleen J. Mullen and Stephanie Rennane

Abstract: There is growing evidence that individuals with disabilities experience reduced consumption and well-being after disability onset. If workers with disabilities are cash constrained soon after the onset of a health condition, the need for cash (and thus the value of benefits) may be particularly high at the beginning of benefit receipt. If this is the case, then a larger or lump sum payment could be more effective at improving beneficiary outcomes soon after the onset of an impairment than smaller monthly payments. While Social Security Disability Insurance (SSDI) has some lump-sum payment features such as back pay and reimbursements for overpayments, there is currently little research exploring how the structure and timing of disability payments affects future labor supply. In this project, we examine the sensitivity of workers with disability to the available amount of cash on hand. Using a regression discontinuity (RD) design, we take advantage of a change in the default payment method of permanent partial disability PPD awards workers’ compensation benefits in Oregon to explore this question. Workers whose total PPD award is less than $6,000 receive the full amount of their benefit as a lump sum, while those whose awards exceed $6,000 default to be paid in monthly installments. Since the award value cannot easily be manipulated, this abrupt change in the default payment method creates exogenous variation in the amount of cash on hand that a worker will have at the time that their claim ends. We perform several tests which validate the use of the RD design, including testing for bunching in the frequency of claims and testing for discontinuous breaks in the trends observable characteristics. However, we do not find statistically significant evidence that the default assignment to receive payment as a lump sum affects subsequent labor supply. Because our findings are local to the $6,000 threshold, it is possible that providing larger benefits in a lump sum could have a greater impact on workers’ labor supply decisions. However, our results do not generalize to benefits far beyond the binding threshold of $6,000. Future work should explore whether larger differences in the level and duration of monthly vs. lump sum payments have meaningful effects on outcomes of workers with disabilities.



Previously released papers

NB20-04: The Evolution of Late-Life Income and Assets: Measurement in IRS Tax Data and Three Household Surveys, by James J. Choi, Lucas Goodman, Justin D. Katz, David Laibson, and Shanthi Ramnath

Abstract: Using a 5% random sample of administrative IRS tax records covering households born from 1933 to 1952, we evaluate how three widely-used household surveys—the Health and Retirement Study, the Survey of Income and Program Participation, and the Current Population Survey—capture the level of and trends in late-life income and assets. First, relative to the tax data, survey data underestimate total income levels and overestimate declines in income at the median during the initial transition from working life to retirement. Survey estimates of median income at age 73 are lower than tax data estimates by an average of 4.5% in the HRS, 14.2% in the SIPP, and 25.1% in the CPS. Median total income declined from 58 to 68 by an average of only 11.7% in the tax data, compared with 24.4% in HRS, 16.8% in SIPP, and 29.0% in CPS. Second, survey sources overestimate income growth across birth cohorts at older ages but do a better job of capturing these trends at younger ages. Third, lower-income households have not experienced income growth across birth cohorts outside of the Social Security system. Averaging across ages 68 to 74, the 25th percentile income excluding Social Security fell by 16.5% from the 1933 birth cohort to the 1943 birth cohort in the tax data. These declines are larger in the HRS (26.9%) and SIPP (45.5%) and smaller in the CPS (11.1%). The fraction of households in the tax data with no non-Social Security income and no assets at age 72 rose from 18.9% to 20.5% from cohorts born in 1933 to 1945. The fraction of such households is captured well by the HRS and SIPP, but overstated by the CPS.

NB20-05: How Disability Benefits in Early Life Affect Long-Term Outcomes, by Manasi Deshpande

Abstract: The debate over the Supplemental Security Income program for children reflects a key tradeoff in welfare programs: transfers to disadvantaged households could promote children's human capital development by increasing household resources, but conditioning those transfers on child health and family income could potentially discourage human capital development by creating perverse incentives. In this paper, I use two regression discontinuity designs (RDD) paired with Social Security administrative data to estimate the net effect of receiving SSI in childhood on adult earnings and to separately identify the household resources channel and perverse incentives channels. Using the first RDD, I find that removing children from SSI has a statistically insignificant net effect on child earnings in adulthood. Using the second RDD and a novel data linkage procedure to identify younger siblings in SSA administrative data, I find that removing youth from SSI at the age of 18 reduces the adult earnings of their younger siblings by about $5,000 annually. This finding suggests that SSI's household resources channel has a large positive effect on children's human capital development. I develop a decomposition procedure to determine the relative contributions of the income transfer and the perverse incentives channels to the net effect of SSI.


NB20-06: Social Security Reform with Heterogeneous Mortality, by John Bailey Jones and Yue Li

Abstract: Using a heterogeneous agent, life-cycle model of Social Security claiming, labor supply and saving, we consider the implications of lifespan inequality for Social Security reform. Quantitative experiments show that welfare is maximized when baseline benefits are independent of lifetime earnings, the payroll tax cap is kept roughly unchanged, and claiming adjustments are reduced. Eliminating the earnings test and the income taxation of Social Security benefits provides additional gains. The Social Security system that would maximize welfare in a \2050 demographics" scenario, characterized by longer lifespans and an increased education-mortality gradient, is similar to the one that would maximize welfare today.


NB20-10: Broad Framing in Retirement Income Decision Making, by Hal E. Hershfield, Suzanne Shu, Stephen Spiller, and David B. Zimmerman

Abstract: Retirees often narrowly bracket retirement income decisions, myopically considering OASI claiming age, pension or 401(k) payouts, annuity purchases, long term care insurance, and use of home equity as independent and unrelated decisions. Prior research on narrow versus broad framing in financial decisions regularly finds that this type of narrow decision framing can cause individuals to accept lower risk, lower value outcomes, whereas a more broadly bracketed set of options can lead to more optimal aggregated choices. In this paper, we use a custom-built retirement decision aid to test how aggregating outcomes across different retirement funding sources, which has previously been unexplored, affects retirement decisions. In particular, we present two studies that experimentally test whether people select systematically different investment risk allocations, wealth drawdown strategies, annuity decisions, and SSA claiming intentions when they are shown the aggregated outcome of the decisions or each piece individually. We find that decisions can be affected by aggregating outcomes, that individuals report higher satisfaction with their decisions when made in an aggregated environment, but that they also indicate that the outcomes they have chosen are less desirable in hindsight than other possible retirement income paths.


NB20-11: The Interaction of Health, Genetics, and Occupational Demands in SSDI Determinations, by Amal Harrati and Lauren L. Schmitz

Abstract: Evaluations of Social Security Disability Insurance (SSDI) applications are based not only on poor health, but in many cases, consider the vocational factors of age, education and work experience to determine whether individuals can work. SSDI determinations based on these factors have grown threefold since 1985 (Michaud, Nelson, and Wiczer 2016). Yet little is known about the relationship between SSDI activity and the ability to meet occupational requirements (Rutledge, Zulkarnain, and King 2019). Moreover, there is strong evidence that morbidity and mortality are distributed unequally across occupations (Marmot et al. 1991), perhaps because differential work environments may exacerbate disability but also because individual-level underlying health is unlikely to be randomly distributed across occupations (Mackenbach et al. 2017). Together, these phenomena result in complex relationships of SSDI determinants with both the independent and joint effects of health and occupational demands. Disentangling the contributions of these forces is challenging, because selection into occupations by health is often unobserved and because data on occupational demands for employment histories is limited. We propose to triangulate between these factors by using a rich set of data linkages from the Health and Retirement Study, including linkage to the Social Security Administration (SSA) disability application file (831 file), and the Department of Labor’s O*Net job classification system.


NB20-13: The Prevalence of COLA Adjustments in Public Sector Retirement Plans, by Maria D. Fitzpatrick and Gopi Shah Goda

Abstract: State and local employees comprise a significant proportion of the workforce and are largely covered by defined benefit pensions. Many of these retirement plans have been facing funding gaps, but legal restrictions often prevent them from reducing benefits for current employees. However, retirement plans can reduce liabilities by changing cost-of-living-adjustments, or COLAs, which are commonly applied to benefits each year to allow retirees to maintain purchasing power in retirement.  In this study, we examine the prevalence of COLA adjustments in public sector retirement plans through original data collection for 49 plans in 30 states, which cover approximately 52 percent of public sector workers overall. Among this sample, on average 45 percent of workers each year experienced some change in COLAs between 2005 and 2018, with more than half of these workers experiencing negative changes. We consider stylized examples of public sector workers subject to reductions in COLAs to understand how COLA adjustments may affect workers’ retirement decisions. Our analysis suggests that eliminating a 3 percent COLA could delay retirement of affected workers by approximately 4.5 months.


NB19-02: What Drives Prescription Opioid Abuse? Evidence from Migration, by Amy Finkelstein, Matthew Gentzkow, and Heidi L. Williams

Abstract: We investigate the role of person-specific and place-specific factors in the opioid epidemic by analyzing cross-county migration of disabled Medicare recipients and its relationship with prescription patterns associated with opioid abuse. We find that movement to a county with a 20 percent higher rate of opioid abuse (equivalent to a move from a 25th to 75th percentile county) increases rates of opioid abuse by 4.5 percent, suggesting that roughly 20 percent of the gap between these areas is due to place-specific factors. These effects are particularly pronounced for prior opioid users, who experience an increase in opioid abuse nearly 1.5 times larger than the increase for opioid naives.


NB19-03: Socioeconomic Status, Perceptions of Pain, and the Gradient in Disability Insurance, by David M. Cutler, Ellen Meara, and Susan Stewart

Abstract: Reports of physical and mental pain differ markedly across socioeconomic groups. Musculoskeletal pain, the leading reason for new disability awards, is more prevalent among less educated people. This paper examines the differential experience of pain by education. We consider gaps in the rate of physical illness or injury, differences in behavioral or environmental factors that exacerbate pain, and factors that could mitigate pain differently across education groups. We focus on musculoskeletal pain, and in particular knee pain, the most common musculoskeletal complaint in population-based surveys. Comparing clinical interpretation of x-rays of knees evaluated for arthritis, there are remarkably few differences in presence or clinical severity of arthritis across education groups. In contrast, for any given objective measure of disease, less educated people report more knee pain. After confirming that reported pain maps to objective measures like walking speed, range of motion, and specific aspects of function, we test whether obesity, physically demanding occupations, or psychological factors more common among less educated individuals explain some of the gap in reported knee pain. Together, physical demands on the job and obesity explain nearly two-thirds of the education gradient in knee pain. In contrast, other job characteristics and psychological traits related to negative affect, life satisfaction, sense of control, and psychological well-being explain almost none of the educational gradient in knee pain. As physically demanding occupations like home health aides, personal service workers, janitorial services and construction are predicted to grow in coming decades, and given steady rise in obesity in the population, pain is expected to contribute to an increase in disability over time.


NB19-05: Changing Labor Markets and Mental Illness, by Richard G. Frank and Sherry A. Glied

Abstract: Many of the sequelae of mental illness – motivational, affective, and cognitive – translate into impairments in the skills that contribute to labor market productivity. A recent review summarized the evidence on cognitive dysfunction for seven categories of mental illness (Millan et al. 2012) concluding that for many people with mental illness, “cognitive dysfunction is broad-based and seriously affects real-world functioning.” More specifically, this review elucidates the important impacts of mental illness on attention, working memory, executive function, speed of processing information, and social cognition. These deficits combined with some of the motivational (e.g., sense of purpose, goal orientation) and affective features of mental illnesses, limit productivity. The impact on productivity stemming from mental illness is exacerbated by the onset of a number of these illnesses in late adolescence and early adulthood, compromising the accumulation of human capital in the forms of education, training and job experience, leaving people with these diagnoses at a lifelong disadvantage (Breslau et al. 2008). While there is a great deal of heterogeneity in the impacts of mental disorders on various dimensions of productivity, mental illnesses have consistently been shown to create large disease burdens. For many people with a mental illness, as for most people, work is beneficial (Luciano AE, GR Bond, RE Drake, 2014). For people with severe mental illnesses, work has a therapeutic effect and leads to more social interaction and better general well-being.


NB19-06: Trends in Retirement Income Adequacy: Evidence from IRS Tax Data, by John Beshears, James J. Choi, and David Laibson

Abstract: Concerns that Americans are not saving enough for retirement, and that this problem is getting worse over time, are common. For example, Munnell, Hou, and Sanzenbacher (2018) estimate that the fraction of working-age American households that will have inadequate income in retirement to maintain their pre-retirement standard of living has grown from 31% in 1983 to 40% in 1998 to 50% in 2016. The alleged decline in economic security in retirement has been attributed to declines in the personal savings rate, the prevalence of defined benefit pensions, and the real interest rate. On the other hand, Biggs (2019) argues that there is no retirement savings crisis. Among other things, he points out that over time, the over-65 poverty rate has fallen and median income in retirement has risen. In this paper, we examine trends in retirement income across the 1930-1941 birth cohorts using a 5% random sample from IRS tax data, comprising 22.6 million person years. An advantage of our analysis is that we do not rely upon survey reports of income, whose accuracy has been a subject of concern (e.g., Bee and Mitchell, 2017; Chen, Munnell, and Sanzenbacher, 2018).


NB19-09: The Impact of Bill Receipt Timing among Low-Income and Aged Households: New Evidence from Administrative Electricity Bill Data, by Lint Barrage, Eric Chyn, and Justine S. Hastings

Abstract: This paper examines whether receiving utility bills closer to the date of government benefits receipt has an impact on whether the bill is paid in full, or on subsequent collections activity or disconnection. It uses anonymized administrative data on billing, payments, and collections from a major residential electricity provider from 2015 to 2018. The paper finds that: Accounts which receive their electricity bill within 1 day on either side of the first of the month are significantly less likely to have a late payment, have significantly lower outstanding balances, and are much less likely to have a notice of electricity disconnection or an actual electricity disconnection. These effects are concentrated in high-poverty neighborhoods. Among those living in block groups with below median income levels, receiving a bill on or within a day of the first of the month reduces the probability that a bill is not paid on time by 36%, reduces by 67% the outstanding unpaid balances, reduces by 43% the probability of being eligible for electricity disconnection, and reduces by 64% the probability of having electricity disconnected. For accounts located in high-median income block groups, measures of late payment and disconnection are substantially lower, and the relationship between timing of bill receipt and the first of the month nearly vanishes. Because Social Security payments are more likely to arrive at a different point in the month than other benefits (such as SNAP), neighborhoods with a high concentration of older residents are less likely to see as large of a first-of-the-month impact. Still, in neighborhoods with an older population and below-median income, receiving a bill at the first of the month reduces the probability of having an unpaid bill by 31%, reduces the overdue amount outstanding by 50%, and reduces the probability of having electricity disconnected by 45%. Nearly half of all Americans live paycheck to paycheck with little savings to smooth over expenditure fluctuations. This study adds to a growing literature suggesting that government benefits programs and/or private industry could innovate in ways to help lower income households balance budgets throughout the month and avoid potential poverty traps.


NB19-10: Recent Trends in Retirement Income Choices at TIAA: Annuity Demand by Defined Contribution Plan Participants, by Jeffrey R. Brown, James M. Poterba, and David P. Richardson

Abstract: This paper uses administrative data from TIAA, one of the largest defined contribution retirement plan providers in the U.S., to document time series variation in participant choices regarding retirement income and cross-sectional differences among participants. The fraction of first-time retirement income claimants who selected a life-contingent annuitized payout stream dropped from 54% in 2000 to 19% in 2017. Over the same period, there was a sharp increase – from 9% to 58% - in the fraction of retirees making no withdrawals until the age at which they needed to begin required minimum distributions (RMDs). Among those who made an initial income selection before age 70, the annuitization rate was higher, and the decline in annuitization rates was more modest, than for those who made this selection at an older age. Those who began drawing income after age 70 were like to withdraw only the amount needed to meet the RMD. The paper also explores two potential explanations for the drop in annuitization rates since 2000: falling nominal interest rates and rising ages of income-claiming. Nominal interest rates are a key determinant of payout-per-premium dollar on newly-purchased annuities, and annuitization decisions are sensitive to this ratio. The 10-year Treasury interest rate declined by over three percentage points during the sample period. In addition, the average retirement age of TIAA participants increased by more than 1.5 years, and the average age of first-time income draws rose by nearly five years. Annuitization is much more likely among those who begin taking income before age 70, so later claiming may translate into less annuity demand. Both falling interest rates and delayed claiming appear to contribute to the observed decline in annuitization.


NB19-18: Does Student Loan Forgiveness Drive Disability Application?, by Philip Armour and Melanie Zaber

Abstract: Student loan debt in the US exceeds $1.3 trillion, and unlike credit card and medical debt, typically cannot be discharged through bankruptcy. Moreover, this debt has been increasing: the share of borrowers leaving school with more than $50,000 of federal student debt increased from 2 percent in 1992 to 17 percent in 2014. However, federal student loan debt discharge is available for disabled individuals through the Department of Education's Total and Permanent Disability Discharge (TPDD) mechanism through certification of a total and permanent disability. In July 2013, the TPDD expanded to include receipt of Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) as an eligible category for discharge, provided medical recovery was not expected. Using data from the Survey of Income and Program Participation (SIPP) matched to SSI and SSDI applications, we find that SSDI and SSI application rates increased among respondents with student loans relative to rates among those without student loans. Our estimates suggest the policy change raised the probability of applying for SSDI or SSI in a given quarter among student loan-holders by 50% (baseline rate per quarter is approximately 0.3%). We also find that SSDI and SSI application rates increased in counties with a greater incidence of student-loan indebtedness. Given that the geographic distributions of student loan indebtedness and historical SSDI/SSI program participation differ, there are strong implications for both the size and location of SSDI and SSI beneficiaries. Furthermore, these findings highlight the importance of learning from policy changes in programs that interact with SSDI and SSI to better understand the drivers of disability program participation.


NB19-19a: Contract Work at Older Ages, by Katharine G. Abraham, Brad Hershbein, and Susan Houseman

Abstract: The share of workers who are self-employed rises markedly with age. Given policy concerns about inadequate retirement savings, especially among those with lower education, and the resulting interest in encouraging employment at older ages, it is important to understand the role that self-employment arrangements play in facilitating work among seniors. New data from a survey module fielded on a Gallup telephone survey distinguish independent contractor work from other self-employment and provide information on informal and online platform work. The Gallup data show that, especially after accounting for individuals who are miscoded as employees, self-employment is even more prevalent at older ages than suggested by existing data. Work as an independent contractor is the most common type of self-employment. Roughly one-quarter of independent contractors age 50 and older work for a former employer. At older ages, self-employment generally—and work as an independent contractor specifically—is more common among the highly educated, accounting for much of the difference in employment rates across education groups. We provide suggestive evidence that differences in opportunities for independent contract work play an important role in the lower employment rates of less educated older adults.


NB19-20: Relabeling, Retirement and Regret, by Jonathan Gruber, Ohto Kanninen & Terhi Ravaska

Abstract: Focal retirement ages are a central feature of Social Security programs around the world, and provide a potentially powerful tool for policy makers who are interested in reforming retirement systems to address the growing funding shortfalls facing these systems around the world. But these tools often come hand in hand with significant changes in the financial structure of Social Security that can have independent, and potentially deleterious, impacts on retirees. In this paper, we use a major reformulation of the retirement system in Finland to investigate the independent effects of retirement age labeling on behavior. A relabeling of retirement ages with modest and continuous changes in financial incentives allows us to separately estimate the impact of relabeling from financial incentives in driving retirement decisions. We find that relabeling is particularly powerful as a determinant of date of retirement. Both graphical evidence and estimated hazard models reveal an enormous change in retirement when individuals face a newly defined “normal retirement” age. Our findings suggest that such relabeling is as powerful as enormous changes in pension wealth or dynamic pension retirement incentives. We also present a new approach to assessing the welfare implications of induced earlier retirement: looking at the impact on return to work. We show that the marginal workers induced to retire by relabeling are much more likely to return to work over the next three years than is the typical worker. This suggests that there is a marginal increase in regret among those who respond to this change in retirement ages.