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. Authors’ Acknowledgements Corresponding author: Gema Zamarro, RAND Corporation, 1776 Main Street, Santa Monica, CA 90407-2138, Tel: 310-393-0411, Email: [email protected]. We are especially grateful to John Travis Jones and Bob Weathers for numerous helpful conversations and assistance with the SSA administrative data. We thank Sarah Kups for excellent research assistance and seminar participants of the RAND L&P brownbag series for helpful comments. This research was supported by a grant from the U.S. Social Security Administration through the Michigan Retirement Research Center. The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA or any agency of the Federal Government.