Occupational Hazards and Social Disability Insurance

FRB of St. Louis Working Paper No. 2014-024A

39 Pages Posted: 27 Aug 2014

See all articles by Amanda M. Michaud

Amanda M. Michaud

Indiana University Bloomington - Department of Economics

David G. Wiczer

SUNY Stony Brook - Department of Economics

Date Written: August 26, 2014

Abstract

Lifetime occupational exposure accounts for 42% of differences in disability risk across individuals. Incorporating this feature into a general equilibrium model, we study how social disability insurance (SDI) affects welfare through (i) the classic channel of risk-sharing and (ii) a new channel of occupational reallocation. Both channels can increase welfare, but at the optimal SDI they are at odds. Welfare gains from additional risk-sharing are reduced by overly incentivizing workers to choose risky occupations. In a calibrated economy resembling the United States, SDI increases welfare by 2.6% (consumption) relative to actuarially fair insurance. The current US system captures 92% of these gains.

Keywords: Disability Insurance, Occupational Choice, Optimal Policy

JEL Classification: E62, I13

Suggested Citation

Michaud, Amanda M. and Wiczer, David G., Occupational Hazards and Social Disability Insurance (August 26, 2014). FRB of St. Louis Working Paper No. 2014-024A. Available at SSRN: https://ssrn.com/abstract=2487507 or http://dx.doi.org/10.2139/ssrn.2487507

Amanda M. Michaud

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

David G. Wiczer (Contact Author)

SUNY Stony Brook - Department of Economics ( email )

NY 11733-4384
United States

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