The Effect of Disability Insurance Payments on Beneficiaries’ Earnings
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.
- When the fraction of earnings replaced by disability insurance benefits is lower, earnings are higher among some disability-payment...
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. citation courtesy of