Hugo Benitez-Silva

An empirical analysis of the social security disability application, appeal, and award process

We provide an empirical analysis of the Social Security disability application, award, . and appeal process using the Health and Retirement Survey HRS . We show that the appeal option increases the award probability from 46% to 73%. However, this comes at the cost of significant delays: the duration between application and award is over three times longer for those who are awarded benefits after one or more stages of appeal. Our results reveal the importance of self-selection in application and appeal decisions. In particular, an individuals self-assessed disability status emerges as one of the most powerful predictors of application, appeal, and award decisions. q 1999 Elsevier Science B.V. All rights reserved.

THE RATIONALITY OF RETIREMENT EXPECTATIONS AND THE ROLE OF NEW INFORMATION

This paper tests the rationality of retirement expectations, controlling for sample selection and reporting biases. We find that retirement expectations in the Health and Retirement Study are consistent with the rational expectations hypothesis. We also analyze how new information affects the evolution of retirement expectations and discover that, on average, individuals correctly anticipate most uncertain events when planning their retirement, except for some health shocks, the need for additional private health coverage, and the probability of a job change. Our results support a wide variety of models in economics that assume rational behavior.

Disability, Capacity for Work and the Business Cycle: An International Perspective

Important policy issues arise from the high and growing number of people claiming disability benefits for reasons of incapacity for work in OECD countries. Economic conditions play an important part in explaining both the stock of disability benefit claimants and inflows to and outflows from that stock. Employing a variety of cross-country and country-specific household panel data sets, as well as administrative data, we find strong evidence that local variations in unemployment have an important explanatory role for disability benefit receipt, with higher total enrolments, lower outflows from rolls and, often, higher inflows into disability rolls in regions and periods of above-average unemployment. In understanding the nature of the cyclical fluctuations and trends in disability it is important to distinguish between work disability and health disability. The former is likely to be influenced by economic conditions and welfare programmes while the latter evolves in a slower fashion with medical technology and demographic changes. There is little evidence of health disability being related to the business cycle, so cyclical variations are driven by work disability. The rise in unemployment due to the current global economic crisis is expected to increase the number of disability insurance claimants.

Early Claiming of Social Security Benefits and Labor Supply Behavior of Older Americans

The labour supply incentives provided by the early retirement rules of the United States Social Security Old Age benefits program are of growing importance as the Normal Retirement Age (NRA) increases to 67 and the labour force participation of older Americans starts to increase. These incentives allow individuals who claim benefits before the NRA but continue to work, or return to the labour force, to increase their future rate of benefit pay by having benefits withheld. Since the adjustment of the benefit rate takes place only after the NRA is reached, benefits received before the NRA can become actuarially unfair for those who continue to work after claiming. Consistent with these incentives, estimates from bivariate models of the monthly labour force exit and claiming hazards using data from the Health and Retirement Study indicate that early claimers who do not withdraw from the labour force around the time they claim are increasingly likely to stay in the labour force.

How Well Do Individuals Predict the Selling Prices of Their Homes

Self-reported home values are widely used as a measure of housing wealth by researchers employing a variety of data sets and studying a number of different individual and household level decisions. The accuracy of this measure is an open empirical question, and requires some type of market assessment of the values reported. In this research, we study the predictive power of self-reported housing wealth when estimating sales prices utilizing the Health and Retirement Study. We find that homeowners, on average, overestimate the value of their properties by between 5% and 10%. More importantly, we are the first to document a strong correlation between accuracy and the economic conditions at the time of the purchase of the property (measured by the prevalent interest rate, the growth of household income, and the growth of median housing prices). While most individuals overestimate the value of their properties, those who bought during more difficult economic times tend to be more accurate, and in some cases even underestimate the value of their house. These results establish a surprisingly strong, likely permanent, and in many cases long-lived, effect of the initial conditions surrounding the purchases of properties, on how individuals value them. This cyclicality of the overestimation of house prices can provide some explanations for the difficulties currently faced by many homeowners, who were expecting large appreciations in home value to rescue them in case of increases in interest rates which could jeopardize their ability to live up to their financial commitments.

The Educated Russian's Curse: Returns to Education in the Russian Federation During the 1990s

This paper uses a representative sample of the Russian Federation, the Russian Longitudinal Monitoring Survey, to estimate the returns to education in this ex-communist country. We tackle this classic issue in labor economics with the realistic expectation of obtaining results for Russia comparable in quality and reliability to those available in developed countries and other economies in transition. Using standard regression techniques we find that the returns to education in Russia are quite low compared with those reported in the literature on countries throughout the world, in almost no specification reaching higher than 5 per cent. Moreover, there is virtually no improvement in returns to education in the 1992-99 period, a result somewhat at odds with other studies using Russian data from similar time periods. When we instrument our main regressor using policy experiments from the 1960s, we find comparable results. We also perform a selectivity correction and discover even lower returns to education for men, although they become slightly higher for women. Additionally, we find extremely low returns to tenure, which can even become negative in certain specifications.

Expectations in Micro Data: Rationality Revisited

An increasing number of longitudinal data sets collect expectations information regarding a variety of future individual level events and decisions, providing researchers with the opportunity to explore expectations over micro variables in detail. We present a theoretical framework and an econometric methodology to use that type of information to test the Rational Expectations (RE) hypothesis in models of individual behavior. This RE assumption at the micro level underlies a majority of the research in applied fields in economics, and it is the common foundation of most work in dynamic models of individual behavior. We present tests of three different types of expectations using two different panel data sets that represent two very different populations. In all three cases we cannot reject the RE hypothesis. Our results support a wide variety of models in economics, and other disciplines, that assume rational behavior.

Expectation formation of older married couples and the rational expectations hypothesis

This paper tests the Rational Expectations (RE) hypothesis regarding retirement expectations of married older American couples, controlling for sample selection and reporting biases. In prior research we found that individual retirement expectation formation was consistent with the Rational Expectation hypothesis, but in that work spousal considerations were not analyzed. In this research we take advantage of panel data on expectations to test the RE hypothesis among married individuals as well as joint expectations among couples. We find that regardless of whether we assume that married individuals form their own expectations taking spouse’s information as exogenous, or the reports of the couple are the result of a joint expectation formation process, their expectations are consistent with the RE hypothesis. Our results support a wide variety of models in economics that assume rational behavior for married couples.

The Annuity Puzzle Revisited

There is a pressing need for a better understanding of how access to various types of financial products can impact retirement behavior, especially if this access comes from a change in the incentive scheme through a reform of the current Social Security system. This is especially important if we are to provide useful policy recommendations regarding reform to the current social insurance system. In this paper I focus on the “annuity puzzle,” the question as to why the annuity market is so narrow. I present a model that endogenizes the annuity decision along with the consumption/saving and labor supply decisions. This research enhances our understanding of how annuities work in a life cycle model with more realistic characterizations of the choices and incentives that individuals face. My results show that the low rates of annuitization can be the product of optimal decision making by individuals in a life cycle model which endogenizes the labor/leisure decision and accounts for Social Security. The government should pay particular attention to the rules regarding withdrawal of benefits through annuities or lump-sums when introducing individual retirement accounts or other privatization schemes, given the interaction between retirement incentives and the attractiveness of annuities.

The Effects of Automobile Recalls on the Severity of Accidents

The number of automobile recalls in the U.S. has substantially increased over the last two decades, and after a record of over 30 million cars recalled in 2004, in the last few years it has consistently reached between 15 and 17 million, and in 2009 alone 16.4 million cars were recalled. Toyotas recall crisis in 2010 illustrates how recalls can affect a large number of American drivers and the defects connected to them can result in loss of life and serious accidents. However, in spite of the increase in public concern over recalls and the loss of property and life attached to them, there is no empirical evidence of the effect of vehicle recalls on safety. This paper investigates whether vehicle recalls reduce accidental harm measured by the severity of injuries in vehicle accidents. The results of our analysis show that if a recall for a new-year model is issued, then the severity of injuries of accidents continuously diminishes during the rst year after the recall, something we do not nd among cars not subject to recalls. This is because defects are repaired over time but also because drivers react by driving more carefully until the defects are fixed. To minimize the losses attached to having dangerously defective cars on our roads, both quick and timely recall issuance are needed and more detailed information on defects should be delivered to owners of defective vehicles. The latter can be made possible through simple but important policy changes by the U.S. government regarding recall information sharing with drivers and insurance companies.