Working Paper: NBER ID: w1690
Authors: Janice Halpern; Jerry Hausman
Abstract: Not all people with health problems are disabled. Some individuals with severe physical or mental impairments, such as blindness or limb amputation, continue to hold jobs and generally function satisfactorily.They constitute, however, a group of potentially disabled individuals who might apply and qualify for Disability Insurance or other disability-related benefits if they were to lose their jobs or to decide that employment offered an inadequate financial or non-pecuniary reward. Thus, disability, or a health-related inability to work, is more than a medical problem but involves motivational and attitudinal factors. We specify a model of the application process, which we model as choice under uncertainty about approval of an application for Disability Insurance. We specify the possible outcomes to the choice process of an individual in which the probability of acceptance for Disability Insurance is a key consideration. We then estimate a joint model of labor supply and application to the Disability Insurance program based on the 1972 survey. We then compare our results to the observed time series applications process since 1976. Lastly, we estimate the sensitivity of the application process to the probability of acceptance and the level of benefits.
Keywords: Disability Insurance; Labor Supply; Social Security; Choice Under Uncertainty
JEL Codes: I13; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| probability of acceptance for DI (p_d) (C46) | likelihood of individuals applying for benefits (J68) |
| severity of disability (I12) | likelihood of individuals applying for benefits (J68) |
| level of benefits offered (J32) | application process (J68) |
| current labor market conditions (J20) | decision to apply for DI (G52) |
| expected utility from applying for DI (J65) | decision to apply for DI (G52) |
| expected utility from working (J29) | decision to apply for DI (G52) |