Health-Driven Productivity and Social Security Disability Insurance
(Job market paper)
This paper explores how an individual's Social Security Disability Insurance (DI) participation decision is related to their health, productivity, and labor market outcomes. Using the objective health indexes available in the Panel Study of Income Dynamics (PSID), I establish that better health conditions are associated with increased wage growth and a reduced probability of future DI participation. To analyze the dynamics underlying these links both theoretically and quantitatively, I develop an equilibrium search model with stochastic health shocks. The novelty of the analysis is incorporating health-driven productivity and endogenous DI participation into the standard Diamond-Mortensen-Pissarides framework. I show that stochastic health-driven productivity in the presence of endogenous job separation plays a pivotal role in accounting for key features of the data on DI participation, as well as the dynamic relationship between health and wages at the individual level. The results emphasize not only the overall health level of the labor force but also the persistence and volatility of the individual-level health conditions are important for understanding the extent of the DI participation. Using the model, I evaluate the current DI program in the U.S. while focusing on policy instruments, such as the length of the waiting periods for the initial application and appeals processes (link).
Social Security Disability Insurance Participation in an Equilibrium Search Model
This paper investigates the relationship between individuals' decisions to participate in Social Security Disability Insurance (DI), their skills, labor market outcomes, and policy instruments. To explore these dynamics theoretically and quantitatively, we extend the standard Diamond-Mortensent-Pissarides framework to a setting with stochastic skills and endogenous DI participation. The model successfully replicates key features of U.S. data, including the wage gap between future DI non-beneficiaries and beneficiaries in the Panel Study of Income Dynamics (PSID). The model predicts three main insights in a steady state. Firstly, relatively skilled workers tend to opt for disability benefits in response to adverse labor market conditions, resulting in countercyclical patterns in the number of DI beneficiaries and their average skill level. Secondly, the average success rate for DI applications positively influences DI participation, while it has a limited effect on the skill composition of participants. Thirdly, more relaxed health-related eligibility criteria mainly encourage relatively less skilled workers to apply for disability benefits. Based on these predictions, higher unemployment caused by worsening labor market conditions leads to increased DI participation. In contrast, higher DI participation driven by policy changes does not significantly reduce unemployment.
On the Interplay between Social Security Disability Insurance Participation
and Labor Market Outcomes
This paper examines the influence of non-health factors on Disability Insurance (DI) participation in the United States, using data from the Current Population Survey Annual Social and Economic Supplement (CPS-ASEC) spanning 2001 to 2021. A logistic regression model is employed to assess the impact of variables such as the replacement rate of DI benefits, unemployment duration, and state-level unemployment insurance (UI) replacement rates. The analysis is enhanced by incorporating year and state fixed effects to ensure robustness and mitigate bias. The findings demonstrate that non-health factors significantly influence DI participation, with distinct effects across demographic subgroups. For example, the replacement rate of DI benefits positively affects DI participation, particularly among less educated and older workers, while longer unemployment duration increases the likelihood of DI enrollment, especially among more vulnerable populations. The robustness of these relationships is confirmed through additional analyses. These results suggest that policy interventions targeting labor market conditions or benefit structures could substantially impact DI participation rates. This study contributes to the broader understanding of social insurance dynamics and offers insights for future policy development aimed at maintaining the DI program’s focus on its intended beneficiaries.