Nicole Maestas

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.

Does Delay Cause Decay? The Effect of Administrative Decision Time on the Labor Force Participation and Earnings of Disability Applicants

An influential body of research studies the labor supply and earnings of denied Social Security Disability Insurance (SSDI) applicants to estimate the potential employment and earnings of those awarded benefits. This research design implicitly treats employability as a stable applicant attribute that is not directly impacted by the process of applying for SSDI benefits. If, plausibly, applicants’ employment potential deteriorates while they are out of the labor force, then the labor force participation of denied applicants -- who spend an average of 10 months seeking benefits -- may understate their employment potential at the time of application. This paper tests whether the duration of SSDI applications causally affects applicants’ subsequent employment. We use a unique Social Security Administration workload database to identify exogenous variation in applicants’ initial decision times induced by differences in processing speed among the disability examiners to which they are randomly assigned. This variation significantly affects applicants’ total processing time but, importantly, is uncorrelated with their initial award and denial outcomes. We find that longer processing times reduce the employment and earnings of SSDI applicants in the years after their initial decision. A one standard deviation (2.4 month) increase in initial processing time reduces annual employment rates by 1 percentage point (3.2%) in years two, three and four post-decision. Extrapolating these effects to total applicant processing times, we estimate that the SSDI determination process directly reduces the post-application employment of denied applicants by approximately 3.6 percentage points (7%) and allowed applicants by approximately 5.2 percentage points (33%).

Discouraged Workers? Job Search Outcomes of Older Workers

Many have suggested we adopt policies that explicitly encourage the elderly to work. Behind this suggestion is the assumption that if an older person desires a job, one will be found; however, little is known about the extent to which this is true, and in the Health and Retirement Study, many more respondents say they expect to work after retirement than actually undertake work. This raises an important question: To what extent can the elderly readily find suitable jobs? In the context of a theoretical job search model, we examine the decision to search for a job and the probability of transitioning to employment using a large sample of non-workers from the Health and Retirement Study. The effects of both supply-side factors (individual characteristics) and demand-side factors (local labor market conditions) are estimated. We find employment transition rates are relatively low for older searchers: only half of older searchers successfully attain jobs. We examine various explanations for this result, including variation in search intensity, reservation wages, and the possibility of intervening health shocks. We conclude that about 13% of older job searchers becomes a discouraged worker in the sense of being willing to work at the prevailing wage, but unable to find a job.

Price Variation in Markets with Homogeneous Goods: The Case of Medigap

Nearly 30 percent of Americans age 65 and older supplement their Medicare health insurance through the Medigap private insurance market. We show that prices for Medigap policies vary widely, despite the fact that all plans are standardized, and even after controlling for firm heterogeneity. Economic theory suggests that heterogeneous consumer search costs can lead to a non-degenerate price distribution within a market for otherwise homogenous goods. Using a structural model of equilibrium search costs first posed by Carlson and McAfee (1983), we estimate average search costs to be

Does the Rise in the Full Retirement Age Encourage Disability Benefits Applications? Evidence from the Health and Retirement Study

72. We argue that information problems arise from the complexity of the insurance product and lead individuals to rely on insurance agents who do not necessarily guide them to the lowest prices.

The Effect of Retirement Incentives on Retirement Behavior: Evidence from the Self-Employed in the United States and England

As the Social Security full retirement age rises, the relative generosity of Social Security retirement benefits compared to disability benefits is declining, raising the incentive for insured people to apply for disability benefits. After controlling for other differences in observable characteristics, such as life-time earnings, we find that an average four month increase in the FRA slightly increases the two-year DI application rate by 0.04-0.30 percentage points. The effect is greater among those with a work limiting health problem (0.22-0.89 percentage points).

The Effect of Population Aging on Economic Growth, the Labor Force and Productivity

The authors examine how public and private pension and health insurance systems affect retirement transitions. In many countries, public and private pension eligibility, as well as access to health insurance varies between self-employed and wage and salary workers, and these differences are likely to cause differential retirement patterns both within and across countries. They use the variation in these institutional features within and across the United States and England to analyze retirement patterns. Based on longitudinal data from the Health and Retirement Study (HRS) in the United States and the English Longitudinal Survey of Ageing (ELSA) they find that the higher labor force exit rate of wage and salary workers compared to self-employed workers is due to defined benefit pension incentives created by the public and private pension systems. Higher rates of labor force exit at ages 55 and older in England compared to the United States are due in part to the availability of publicly provided health insurance.

Labor Supply Effects of the Interaction between the Social Security Disability and Retirement Programs at Full Retirement Age

Population aging is widely assumed to have detrimental effects on economic growth yet there is little empirical evidence about the magnitude of its effects. This paper starts from the observation that many U.S. states have already experienced substantial growth in the size of their older population and much of this growth was predetermined by historical trends in fertility. We use predicted variation in the rate of population aging across U.S. states over the period 1980-2010 to estimate the economic impact of aging on state output per capita. We find that a 10% increase in the fraction of the population ages 60+ decreases the growth rate of GDP per capita by 5.5%. Two-thirds of the reduction is due to slower growth in the labor productivity of workers across the age distribution, while one-third arises from slower labor force growth. Our results imply annual GDP growth will slow by 1.2 percentage points this decade and 0.6 percentage points next decade due to population aging.

The Impact of Health Insurance Status on Treatment Intensity and Health Outcomes

The Social Security Disability Insurance (DI) program imposes strong work restrictions on beneficiaries; however, the causal effect of the work disincentives on labor supply has been difficult to estimate. We take a new look at this question by exploiting the fact that DI benefits are payable only until full retirement age (FRA), at which point they are converted to retired worker benefits, and the programs implicit high marginal tax rate on earnings is abruptly relaxed. Using a quasi-experimental research design, we examine whether the DI work disincentives are binding by comparing changes in labor force participation rates before and after the FRA for DI beneficiaries and non-beneficiaries. We find a relative increase in labor force participation at FRA for DI beneficiaries of 10.4 percentage points, and argue that this is likely a lower bound estimate on the labor supply disincentive effects of the DI program.

Disability Insurance and Healthcare Reform: Evidence from Massachusetts

This paper uses the abrupt changes in health insurance coverage at age 65 arising from the Medicare program eligibility rules to evaluate the impact of insurance status on treatment intensity and health outcomes. Drawing from several million hospital discharge records for the State of California, the authors begin by identifying a subset of patients who are admitted through the emergency room for non-deferrable conditions-diagnoses with the same daily admission rates on weekends and weekdays. Among this subset of patients there is no discernable rise in the number of admissions at age 65, suggesting that the severity of illness is similar for patients who are just under 65 and those who are just over 65. The fraction of patients in this group who lack health insurance, however, falls sharply at age 65, while the proportion with Medicare as their primary insurer rises. Tracking health-related outcomes of the group, they find significant increases in treatment intensity at the age 65 barrier, including increases in the number of procedures performed, and total list charges. They also find a rise in the probability that patients are transferred to other units within the same hospital, coupled with a reduction in the probability of discharge to home. Finally, they estimate a drop in the rate of re-admission within one month of the initial discharge.