Do Disability Benefits Discourage Work?
Social Security Disability Insurance (SSDI) is intended to replace lost income for people suffering from a disability that is likely to cause substantial long-term losses in earnings. A concern has been that SSDI may have a disincentive effect on the willingness of recipients to work -- that is, that some SSDI beneficiaries would work if they did not receive benefits, say Nicole Maestas and Kathleen J. Mullen of the RAND Corporation.
The authors examined SSDI applications between 2005 and 2006, focusing on a "natural experiment" that arises from the disability determination process itself: Some of the disability examiners who decide these cases are more stringent than others. This allowed Maestas and Mullen to compare work activity among similar applicants who were initially allowed or denied benefits only because their applications were randomly assigned to disability examiners with different propensities to allow benefits.
Maestas and Mullen found that those who have impairments that are on the margin of allowance for SSDI benefits are strongly discouraged from returning to work if they are awarded benefits.
They also found that those who are relatively less impaired are substantially more likely to return to work if denied benefits, whereas beneficiaries with the most severe impairments would not be any more likely to work if they had not received SSDI.
The finding highlights a major inefficiency in program operations: potentially redundant and inconsistent processing of a large fraction of applicants who are ultimately allowed to receive benefits. This kind of evidence should be useful to policymakers and taxpayers who are interested in constraining the growth of the SSDI program.
Source: Nicole Maestas and Kathleen J. Mullen, "Do Disability Benefits Discourage Work?" RAND Corporation, August 2011.
For text: http://www.rand.org/pubs/working_briefs/WB111.html