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%).
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- UM11-01: What Are the Real Application Costs of SSDI? The Effect of Waiting Time on Labor Force Participation and Earnings
Paper IDWP 2011-258