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The Effect of Disability Insurance on Work Activity: Evidence from a Regression Kink Design

Alexander Gelber Timothy Moore, Alexander Strand

NBER Disability Research Center Paper No. NB 13-05
Issued in April 2013

The effect of disability insurance program generosity on beneficiary work activity is a question of fundamental importance to the design of the program. A research challenge is differentiating between the incentive effects of the program in discouraging work, and the effect of benefit gen-erosity on the type of individuals who apply for and receive DI. In this paper, we seek to over-come this challenge by using policy rules that affect the generosity of DI benefits, but should not affect the types of individuals who are receiving benefit under the program. Specifically, we ex-amine the "bend points" in the schedule determining the relationship between an individual's previous earnings and the DI payments they receive. Using Social Security administrative data on the universe of new DI beneficiaries from 1996 to 2008, we document a modest effect of DI payment amounts on earnings and other measures of work activity. In a baseline specification, the estimates imply that as DI payments rise by one dollar, earnings fall by three cents. Our esti-mate of the elasticity of earnings with respect to DI payments is modest, in contrast with previ-ous studies that have found large impacts of DI on work decisions. However, our estimates also apply to a different population; those already on DI.

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