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

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Abstract

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%).

Key Findings

  • We find that longer processing times of disability applications reduce the employment and earnings of SSDI applicants in the years after their initial decision.
  • We estimate that the SSDI determination process directly reduces the post-application employment of denied applicants by about 7% and allowed applicants by about 33%.
  • The mean determination time for allowed applicants significantly exceeds that of denied applicants (14.1 versus 9.7 months) because half of beneficiaries are allowed only after a lengthy appeal.

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Project

Paper ID

WP 2011-258

Publication Type

Working Paper

Publication Year

2011