The Effects of Wage Indexing on Social Security Disability Benefits

Abstract:     
Researchers David Autor and Mark Duggan have hypothesized that the Social Security benefit formula using the average wage index, coupled with a widening distribution of income, has created an implicit rise in replacement rates for low-earner disability beneficiaries. This research attempts to confirm and quantify the replacement rate creep identified by Autor and Duggan using actual earnings histories of disability insured workers. The article examines the actual benefit levels and replacement rates that workers would receive if they became disabled over the 1979 to 2004 period and to see if these rates are, in fact, rising. The article also uses an alternative, more representative index to assess the "earnings history" and "bracket" effects and examines their combined effect on replacement rates. The results generally support the earlier research and suggest that disability replacement rates are rising for many insured workers, although the effect may be somewhat smaller than that suggested by Autor and Duggan.

Keywords: disabled workers, social security, replacement rates, indexing

JEL Classifications: H53, H55, I18, J14, J26, J68

Accepted Paper Series