Geographic Differences in Disability Insurance Rates
Although much research has explored the rise in disability insurance (DI) receipt, there has been much less work explaining the large geographic differences in DI rates across cities and states. We explore the drivers of this heterogeneity using administrative tax data that allows us to link young adults (ages 24-34) to their parents. Our findings are threefold. First, children from low income families display sharply varying probabilities of receiving DI depending on the place where they grew up, while those from rich families show no similar differences. We study children who move between cities to show that roughly 30% of these place-based differences are causal. Second, we show that kids’ outcomes for DI receipt and income exhibit an “aggregation reversal,” in that they correlate negatively at the individual level but positively at the CZ level. Places where poor children grow up to have the highest rates of DI receipt tend to be “good” areas based on many standard characteristics, including lower inequality, lower segregation, higher school quality, and higher social capital. State level tax policies are also predictive of DI rates; states with more generous EITCs, lower tax rates, and less progressive tax rate structures, each tend to have higher DI rates. Third, we show that a substantial fraction of the geographic variation in DI rates can be explained by local labor market conditions, and by cities’ heterogeneous sensitivity in DI rates to those underlying economic conditions.
This research was supported by the U.S. Social Security Administration through grant #1 DRC12000002-05 to the National Bureau of Economic Research as part of the SSA Disability Research Consortium. The findings and conclusions expressed are solely those of the author(s) and do not represent the views of SSA, the U.S. Department of Treasury, any other agency of the Federal Government, or the NBER. We thank Max Kellogg, Sarah Merchant, Jordan Richmond, and Jesse Silbert for excellent research assistance.