Does Disability Insurance Receipt Discourage Work? Using Examiner Assignment to Estimate Causal Effects of SSDI Receipt

We present the first estimates of the causal effects of Social Security Disability Insurance receipt on labor supply estimated using the entire population of program applicants. We exploit administrative data to match applications to disability examiners, and use natural variation in examiners’ allowance rates as an instrument for the allowance decision in a labor supply equation contrasting denied vs. allowed applicants. Importantly, we find that the disincentive effect is heterogeneous, ranging from a 10 percentage point reduction in labor force participation for those with more severe impairments to a 60 percentage point reduction for entrants with relatively less severe impairments. Maestas: RAND Corporation, 1776 Main Street, Santa Monica, CA 90401 (e-mail: maestas@rand.org); Mullen: RAND Corporation, 1776 Main Street, Santa Monica, CA 90401 (e-mail: kmullen@rand.org); Strand: Social Security Administration, 500 E Street, 9 th Floor, Washington, DC 20254 (e-mail: Alexander.Strand@ssa.gov). We thank Josh Angrist, David Autor, John Bound, Raj Chetty, Eli Donkar, Kirk Doran, Joe Doyle, Eric French, Larry Katz, Lee Lockwood, Erin Johnson, Day Manoli, Heather Royer, David Stapleton, Till von Wachter, Heidi Williams, participants in the 2010 MRRC Researcher Workshop, the 2010 All-CA Labor Economics Conference at UC-Santa Barbara, and the 2011 American Economic Association meetings, and seminar participants at the Center for Business and Public Policy at the University of Illinois, Urbana-Champaign, RAND, and the MIT Economics Department for helpful comments and suggestions. This research was supported by a grant from the U.S. Social Security Administration (SSA) through the Michigan Retirement Research Center (MRRC). The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA or any agency of the Federal Government.