The Effect of Disability Insurance Receipt on Labor Supply (REVISED July 2011)
This paper estimates the effect of Disability Insurance receipt on labor supply. We
find that benefit receipt reduces labor force participation by 26 percentage points three years after a disability determination decision, although the reduction is smaller for those over age 55, college graduates, and those with mental illness. Estimates are not sensitive to accounting for the fact that those allowed benefits are different than those who are denied. However, estimates are sensitive to accounting for the fact that many individuals who are initially denied are later allowed. The participation elasticity with respect to the after-tax wage is 1.5.