To Work for Yourself, for Others, or Not At All? How Disability Benefits Affect the Employment Decisions of Older Veterans

The Department of Veterans Affairs Disability Compensation (DC) program provides disability benefits to nearly one in five veterans in the US and has annual expenditures of $60 Billion, yet it has received little attention from economists. We examine how the receipt of DC benefits affects the employment decisions of older veterans. We make use of variation in program eligibility resulting from a 2001 policy change that increased access to the program for Vietnam veterans who served with “boots on the ground” in the Vietnam theater but not for other veterans of that era. We find that the expansion of the program led to a decrease in labor force participation and to an even larger switch from wage employment to self-employment. We estimate that one in four veterans who entered the DC program due to this policy change left the labor force, estimates in the same range as those from recent studies of the Social Security Disability Insurance (SSDI) program.