Does Disability Insurance Receipt Discourage Work? Using Examiner Assignment to Estimate Causal Effects of SSDI Receipt?

Abstract

We present the first estimates of the causal effects of SSDI receipt on labor supply that are generalizable to the entire population of program entrants in the present day system. We take advantage of a unique workload management database to match Social Security Disability Insurance (SSDI) applicants to disability examiners, and use natural variation in examiners’ allowance rates to estimate the labor supply effects of SSDI. Because applicants are randomly assigned to examiners (conditional on observable characteristics), examiner specific allowance rates can be used to instrument for the allowance decision in a labor supply equation contrasting denied vs. allowed applicants. We find that the labor force participation rate of the marginal entrant would be on average 21 percentage points greater in the absence of SSDI benefit receipt. His or her likelihood of engaging in substantial gainful activity as defined by the SSDI program would be on average 13 percentage points higher, and he or she would earn $1,600 to $2,600 more per year on average in the absence of SSDI benefit receipt. The marginal entrant is likely to have a mental impairment, be young, and have low pre-onset earnings. Importantly, the disincentive effect varies across individuals with impairments of different degrees of unobservable severity, ranging from a low of 10 percentage points for those with more severe impairments to a high of 60 percentage points for entrants with relatively less severe impairments.