Induced Entry into the Social Security Disability Program: Using Past SGA Changes as a Natural Experiment
The number of American adults receiving benefits from the Social Security Disability Insurance (SSDI) program has increased dramatically over the past several decades. A proposed solution to rising program costs is to change program rules to encourage fully or partially recovered SSDI beneficiaries to return to work. One such option is a benefit offset policy, which would reduce SSDI benefits by $1 for every $2 of earned income. While a benefit offset could generate savings from increased labor supply and program exit among current beneficiaries, it could also generate unintended costs if the more generous work rules induce significant numbers of working individuals to apply for benefits. In this paper we examine how past changes in a closely related program parameter, the Substantial Gainful Activity (SGA) threshold, have affected SSDI applications. We exploit changes over time and across states in real relative SGA levels, relative to local average wages. We find that a 7 percentage point (30%) increase in the real relative SGA (on par with the 1999 increase from $500 to $700 per month) was associated with a 4.7% increase in applications.
- We find that increases in the real threshold for Substantial Gainful Activity (SGA), relative to local (state-level) average wages, are associated with significant increases in SSDI application rates.
- Our preferred estimates imply that the 1999 increase in the nominal SGA threshold from $500 to $700 led to a 4.7% increase in SSDI applications, or 0.2 new applications per year per 1,000 individuals.
- Our theoretical framework suggests that this estimate is likely to be a good approximation of potential induced entry from a $1 for $2 benefit offset if the marginal SSDI applicant has low potential wages.
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Paper IDWP 2012-262