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  5. New Perspectives on Disability Policy
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New Perspectives on Disability Policy

Paper Session

Saturday, Jan. 4, 2025 10:15 AM - 12:15 PM (PST)

Hilton San Francisco Union Square, Union Square 21
Hosted By: Econometric Society
  • Chair: Mark Gregory Duggan, Stanford University

Estimating the Moral Hazard Cost of Private Disability Insurance and its Welfare Consequences

Sebastian Seitz
,
University of Manchester

Abstract

Although one-third of workers in the USA and Germany contract supplementary private disability insurance (DI), most studies on the design of public DI systems abstract from private DI. Using unique and comprehensive contract data from a major German insurance company and representative survey data, I add novel insights on the interaction between private and public DI by estimating a rich dynamic life-cycle model with private insurance choices. I find that the welfare-improving public DI schedule is less generous in the presence of supplementary private DI. This is a consequence of the additional moral hazard private DI take-up imposes on the public system. I show that while having a private DI market is welfare-improving under the current public DI schedule in Germany, private DI markets can be welfare-reducing for more generous public DI systems as observed in other countries.

Privatizing Disability Insurance

Arthur Seibold
,
University of Mannheim
Sebastian Seitz
,
University of Manchester
Sebastian Siegloch
,
University of Cologne

Abstract

Public disability insurance (DI) programs in many countries face pressure to reduce their generosity in order to remain sustainable. In this paper, we investigate the welfare effects of giving a larger role to private insurance markets in the face of public DI cuts. Exploiting a unique reform that abolished one part of the German public DI system for younger workers, we find that despite significant crowding-in effects, overall private DI take-up remains modest. We do not find any evidence of adverse selection on unpriced risk. On the contrary, private DI tends to be concentrated among high-income, high-education and low-risk individuals. Using a revealed preferences approach, we estimate individual DI valuations, a key input for welfare calculations. We find that observed willingness-to-pay of many individuals is low, such that providing DI partly via a private insurance market with choice improves welfare. However, we show that distributional concerns as well as individual risk misperceptions can provide grounds for justifying a full public DI mandate.

Revisiting the Employment Effects of the Americans with Disabilities Act

Jeremy Lise
,
University of Minnesota
Elena Pastorino
,
Stanford University
Luigi Pistaferri
,
Stanford University

Abstract

In this paper, we revisit the evidence on the employment effects of the Americans with Disabilities Act (ADA) of 1990. The existing literature has assessed the impact of the policy by comparing the labor market outcomes of individuals who report limitations to their ability to work (work limitations) and the labor market outcomes of individuals who do not. Since the ADA applies to all disabled individuals, not just those with work limitations, we rely on rich health and limitation information from the Survey of Income and Program Participation to draw a distinction between individuals with work limitations and individuals with other types of limitations that do not necessarily impact their ability to work (functional limitations). Consistently with the literature, over a longer sample period than used in previous work, we find that the ADA has had a negative effect on the employment and wages of individuals with work limitations. However, we also find that the policy has had a substantial and significant positive effect on the employment of individuals with physical or mental limitations that are not work-impacting, even when severe, with virtually no effect on their wages. To interpret this evidence, we develop a search and matching model of the labor market in which a worker’s productivity and value of non-market time vary with a worker’s disability status and firms face different costs to employ, accommodate, and separate from different types of workers, with and without disabilities. We then use the model to evaluate the heterogeneous impacts of the policy on the employment and wages of work disabled and non-work disabled workers, to examine the relative importance of the different components of the policy on these outcomes, and to compare alternative designs of it.

Explaining the Decline in SSDI Enrollment since 2010

Manasi Deshpande
,
University of Chicago
Maxwell Kellogg
,
University of Oslo
Magne Mogstad
,
University of Chicago
Kuan-Ju Tseng
,
University of Chicago

Abstract

The increase in Social Security Disability Insurance (SSDI) enrollment in the 1990s and 2000s sparked concerns about fiscal costs and shirking. However, SSDI enrollment has been declining for the past decade with little rigorous evidence about why. In the statistical analysis, we develop a novel decomposition method that allows us to estimate interaction terms individually and allocate them to components flexibly depending on the parameter of interest. We apply this decomposition to Social Security administrative data to decompose both the SSDI increase from the 1990s and 2000s as well as the SSDI decline in the 2010s. In the causal analysis, we model the application decision and determine which factors can be ruled out as causes and which factors could explain the decline in SSDI enrollment.

Discussant(s)
Mark Gregory Duggan
,
Stanford University
JEL Classifications
  • I3 - Welfare, Well-Being, and Poverty
  • H2 - Taxation, Subsidies, and Revenue