Economic Consequences of Tightening the Disability Screening Process
NBER Disability Research Center Paper No. NB 14-11
Issued in September 2014
A common policy proposal to reverse the growth in disability insurance (DI) rolls is to tighten the screening process. On the one hand, stricter screening criteria could reduce the number of individuals who still have substantial work capacity from collecting benefits. On the other hand, it could result in income or welfare loss to individuals and families who value the insurance aspect of the program in cases of true disability. To date, most existing research focus on the labor market impact of DI receipt, and little is known about how a tightening of the disability screening would affect individuals and families on other margins. This paper helps to close that gap by analyzing the broader economic consequences of tightening the disability screening. The key to our research design is twofold. First, we are able to link a number of administrative registers from Norway, providing a unique population panel data set with detailed information about every individual and family. Second, the DI system in Norway randomly assigns judges to DI applicants whose cases are initially denied; some appeal judges are systematically more lenient, which leads to random variation in the probability an individual will get onto DI. We use the random assignment of appeal judges to estimate the causal effects of DI allowance on a variety of outcomes, including not only individual labor force participation and earnings but also participation in other social insurance programs and the income available for household consumption.
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