Asset Accumulation and Labor Force Participation of Disability Insurance Applicants

Posted: 8 Aug 2013 Last revised: 4 Aug 2015

See all articles by Pian Shu

Pian Shu

Scheller College of Business, Georgia Tech

Date Written: September 2015

Abstract

This paper provides empirical evidence of the existence of forward-looking asset-accumulation behavior among disability-insurance applicants, previously examined only in the theoretical literature. Using panel data from the RAND Health and Retirement Study, I show that rejected applicants for Social Security Disability Insurance (SSDI) possess significantly more assets than accepted applicants immediately prior to application and exhibit lower attachment to the labor force. These empirical results are consistent with the theoretical prediction in Diamond and Mirrlees (1978) and Golosov and Tsyvinski (2006) that certain individuals with high unwillingness to work maximize utility by planning in advance for their future disability insurance application. Because the existing empirical literature on disability insurance does not account for this intertemporal channel, it may underestimate the total work-disincentive effect of SSDI.

Keywords: Disability insurance, asset accumulation, labor force participation; Health and Retirement Studies (HRS)

JEL Classification: H55, J22, H31

Suggested Citation

Shu, Pian, Asset Accumulation and Labor Force Participation of Disability Insurance Applicants (September 2015). Journal of Public Economics, Vol. 129, 2015, Available at SSRN: https://ssrn.com/abstract=2295538 or http://dx.doi.org/10.2139/ssrn.2295538

Pian Shu (Contact Author)

Scheller College of Business, Georgia Tech ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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