Asset Accumulation and Labor Force Participation of Disability Insurance Applicants

Using panel data from the RAND Health and Retirement Study, I show that rejected applicants for the Social Security Disability Insurance (SSDI) possess significantly more assets immediately prior to their application and exhibit lower labor force attachement than accepted applicants. These finding are consistent with the theoretical prediction that disability insurance may enourage individuals to save more in the present and plan to apply for disability benefits in the future, regardless of the state of their future health. Because the current empirical literature does not account for this intertemporal channel, it may underestimate the total work disincentive effect of SSDI.