The Effect of Disability Insurance Payments on Beneficiaries' Earnings

Alexander Gelber, Timothy Moore, Alexander Strand

NBER Working Paper No. 21851
Issued in January 2016
NBER Program(s):Economics of Aging, Health Care, Health Economics, Labor Studies, Public Economics

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.

download in pdf format
   (1780 K)

email paper

A non-technical summary of this paper is available in the May 2016 NBER Digest.  You can sign up to receive the NBER Digest by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21851

Published: 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

Users who downloaded this paper also downloaded* these:
Schmieder and von Wachter w22564 The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation
Olivetti and Petrongolo w23051 The Economic Consequences of Family Policies: Lessons from a Century of Legislation in High-Income Countries
Borella, De Nardi, and French w21873 Who Receives Medicaid in Old Age? Rules and Reality
Marx and Turner w20850 Borrowing Trouble? Student Loans, the Cost of Borrowing, and Implications for the Effectiveness of Need-Based Grant Aid
Auerbach, Kotlikoff, Koehler, and Yu w22770 Is Uncle Sam Inducing the Elderly to Retire?
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us