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Pennsylvania Convention Center, 104-A
American Economic Association
Disability Insurance and Disability Discrimination
Saturday, Jan. 6, 2018 8:00 AM - 10:00 AM
- Chair: Patrick Button, Tulane University
A Comprehensive Analysis of the Effects of U.S. Disability Discrimination Laws on the Employment of the Disabled Population
AbstractWe conduct a comprehensive analysis of the effect of disability discrimination laws on the labor markets of individuals with disabilities. We examine almost all variation in the federal Americans with Disabilities Act (ADA), including later expansions and contractions of this law in Supreme Court cases and with the ADA Amendments Act. While we examine several variables, we focus on estimating the effects of these legal changes on hiring, as this is the margin where the effect of the discrimination law is most unclear. We estimate effects by type of disability, going beyond the conventional “work-limited” definition by using definitions based on the severity of impairments to activities of daily life, and by distinguishing between disability types, such as focusing on if the conditions are salient to an employer at the time of interview. We find that most expansions (contractions) of disability discrimination protections are associated with increases (decreases) in hiring. The ADA and ADA Amendments Act are both associated with increased hiring. Our results also vary by how disability is defined, with the more plausible activities of daily life definition of disability showing more positive impacts. Our analysis of the effect of these laws on earnings and Social Security Disability Insurance application and use is in progress.
The Effect of the Disability Insurance Application Decision on the Employment of Denied Applicants
AbstractSocial Security Disability Insurance (SSDI) affects the labor supply of applicants through its work discouragement and through human capital deterioration regardless of the ultimate acceptance or denial of the claim. The existing literature is primarily focused on estimation of the benefit receipt effect of SSDI using the denied applicants as a comparison group. Instead, this paper provides an estimate of the causal effect of SSDI application on denied applicants using non-applicants as a comparison group. I find that SSDI causes a 36 percentage point reduction in employment for the denied applicants in the short-run. I exploit the differential incentives for SSDI application across birth-cohorts due to the increase in the Full Retirement Age and variance in the SSDI allowance rates across states to exogenously identify the SSDI application decision of denied applicants. The IV estimates suggest that the existing literature does not fully capture the negative labor supply effects of SSDI on the applicants. The findings of this paper will facilitate policymakers to re-think reforms to reduce the work disincentives while applying and waiting for SSDI determination and to make more resources available to smooth the transition of denied SSDI applicants back into the labor force, especially for older workers close to retirement.
Adjustment Costs and Incentives to Work: Evidence From a Disability Insurance Program
AbstractHow important are adjustment costs for individuals when they face incentives to work induced by a policy change? I provide the first estimate of heterogeneous adjustment costs by exploiting a unique policy change that induces large incentives to work. The policy change dramatically decreased marginal tax rates on earnings in a non-linear tax schedule on earnings in a disability insurance program in Canada. Individuals continue to bunch at the location of a kink even when the kink no longer exists, suggesting that they face adjustment costs when changing their labor supply. I use the amount of bunching at the kinks before and after the policy change to estimate the size of adjustment costs that vary by individuals’ ability to work. The estimated adjustment costs are higher for individuals with lower ability; varying from zero to 8 percent of their potential earnings. The estimated elasticity of earnings with respect to tax rates – accounting for heterogeneous adjustment costs – is 0.2 which is double the size of the one estimated with no adjustment costs. The policy change also decreased the marginal tax rates far away from the kinks. I then evaluate the overall effects of the policy change on the labor supply using a Difference-in-Differences design. I find that some individuals work more and some others start working in response to the large induced incentives to work. Accounting for the adjustment costs then might explain the disparate findings on the effects of increase in incentives to work on labor supply in disability insurance programs. My findings therefore have important implications for designing policies and targeting heterogeneous groups to increase labor supply in disability insurance programs.
Montana State University
- J2 - Demand and Supply of Labor
- J7 - Labor Discrimination