Association for Public Policy Analysis & Management

Panel: The Impact of Social Security Disability Rules on Beneficiary Earnings: New Evidence

(Employment and Training Programs)

Social Security Disability Insurance (SSDI) is the nation’s primary earnings-replacement program for workers who become unable to work due to functional limitations caused by physical or mental health conditions. In 2014, nearly 11 million people received SSDI benefits—about 5 percent of all people ages 25 to 64. Rapid growth in the SSDI program over the past several decades has placed the program on the brink of financial crisis and Social Security’s trustees expect the SSDI Trust Fund to be exhausted by late 2016. Despite program growth, people with disabilities struggle economically and about 28 percent of SSDI-only beneficiaries (those not also receiving Supplemental Security Income) live in poverty. Some policymakers look to modifications to the structure of the SSDI program as a potential solution to the SSDI Trust Fund crisis and as a source of improvement to beneficiary wellbeing. Previous research has established that the SSDI program has substantial work disincentives. Indeed, the inability to engage in substantial gainful activity is a requirement for initial program participation and continued benefit receipt. One study found that, over the course of a ten year period, 6.5 percent of newly awarded beneficiaries had their benefits withheld of suspended due to work. However, a significantly higher proportion, 31 percent of beneficiaries, indicated that their goals include employment or career advancement. Researchers hypothesize that different program incentives may yield different results. In this panel, we will present research assessing the impact of SSDI benefit payments on beneficiary earnings. The first paper uses discontinuous changes in the formula used to calculate SSDI payments on earnings to estimate income and substitution effects of marginal changes in SSDI benefits on earnings. The second and third presentations assess the impact of a Social Security Administration (SSA) experimental test of a benefit offset—a $1 reduction in benefits for every $2 in earnings over a certain threshold—on beneficiary earnings. SSA conducted the experiment in two stages. The first stage is representative of all SSDI beneficiaries while the second is targeted towards beneficiaries most likely to engage in substantial employment. The second presentation will include results from an analysis of early impacts from the first stage of BOND through 2013; results for 2011 and 2012 have found no significant impact on earnings. The third presentation will include results from an analysis of the second stage of BOND, which found that the benefit offset had a positive and statistically significant impact on earnings in 2012. The findings from this panel have implications not only for SSDI but also for income support programs more broadly. The first paper isolates the income effect from a cash transfer while the second and third papers evaluate how earnings incentives affect beneficiary earnings. Policymakers may apply lessons from all three presentations to other means-tested programs.