Working Paper: NBER ID: w21851
Authors: Alexander Gelber; Timothy Moore; Alexander Strand
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.
Keywords: Disability Insurance; Earnings; Income Effects; Substitution Effects; Public Policy
JEL Codes: H31; I18; J14; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| disability insurance (DI) payments (J65) | beneficiaries' earnings (H55) |
| disability insurance (DI) payments (J65) | elasticity of earnings (J31) |