The Effect of Disability Insurance Payments on Beneficiaries’ Earnings

65 Pages Posted: 12 Jan 2016 Last revised: 17 Mar 2023

See all articles by Alexander M. Gelber

Alexander M. Gelber

Wharton School, University of Pennsylvania; National Bureau of Economic Research

Timothy Moore

George Washington University

Alexander Strand

Social Security Administration

Date Written: January 2016

Abstract

A crucial issue in studying social insurance programs is whether they affect work decisions through income or substitution effects. We examine this in the context of U.S. Social Security Disability Insurance (DI), one of the largest social insurance programs in the U.S. The formula linking DI payments to past earnings has discontinuous changes in the marginal replacement rate that allow us to use a regression kink design to estimate the effect of payment size on earnings. Using Social Security Administration data on all new DI beneficiaries from 2001 to 2007, we document a robust income effect of DI payments on earnings. Our preferred estimate is that an increase in DI payments of one dollar causes an average decrease in beneficiaries’ earnings of twenty cents. This suggests that the income effect represents an important factor in driving DI-induced reductions in earnings.

Suggested Citation

Gelber, Alexander M. and Moore, Timothy and Strand, Alexander, The Effect of Disability Insurance Payments on Beneficiaries’ Earnings (January 2016). NBER Working Paper No. w21851, Available at SSRN: https://ssrn.com/abstract=2713575

Alexander M. Gelber (Contact Author)

Wharton School, University of Pennsylvania ( email )

1403 Steinberg-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6372
United States

HOME PAGE: http://www.nber.org/~agelber

National Bureau of Economic Research ( email )

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Cambridge, MA 02138
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Timothy Moore

George Washington University ( email )

2121 I Street NW
Washington, DC 20052
United States

Alexander Strand

Social Security Administration ( email )

Washington, DC
United States

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