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American Economic Journal: Economic Policy: Vol. 6 No. 2 (May 2014)

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The Effect of Disability Insurance Receipt on Labor Supply

Article Citation

French, Eric, and Jae Song. 2014. "The Effect of Disability Insurance Receipt on Labor Supply." American Economic Journal: Economic Policy, 6(2): 291-337.

DOI: 10.1257/pol.6.2.291

Abstract

This paper exploits the effectively random assignment of judges to Disability Insurance cases to estimate the causal impact of Disability Insurance receipt on labor supply. We find that benefit receipt reduces labor force participation by 26 percentage points three years after a disability determination decision, although the reduction is smaller for older people, college graduates, and those with mental illness. OLS and instrumental variables estimates are similar. Furthermore, over 60 percent of those denied benefits by an administrative law judge are subsequently allowed benefits within ten years, showing that most applicants apply, reapply, and appeal until they get benefits.

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Authors

French, Eric (U College London and Federal Reserve Bank of Chicago)
Song, Jae (US Social Security Administration)

JEL Classifications

H55: Social Security and Public Pensions
J14: Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination
J22: Time Allocation and Labor Supply
K23: Regulated Industries and Administrative Law

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