Understanding the Impact of Cash on Hand on the Labor Supply of Disabled Workers
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.