SPOUSAL LABOR SUPPLY AND THE WELFARE IMPLICATIONS OF DISABILITY INSURANCE REFORM

TitleSPOUSAL LABOR SUPPLY AND THE WELFARE IMPLICATIONS OF DISABILITY INSURANCE REFORM
Publication TypeThesis
Year of Publication2021
AuthorsKellogg, MDylan
Academic DepartmentEconomics
UniversityThe University of Chicago
CityChicago, IL
Keywordsdisability insurance, Labor Supply, reform, Welfare
Abstract

This paper uses a life cycle model to study interactions between household self-insurance and
the U.S. Disability Insurance (DI) system. The model is motivated and guided by evidence
from panel data on disability onset in U.S. households, showing that married workers benefit
from both higher self-insurance capacity and higher utilization of DI compared to unmarried
workers—who are left, by contrast, more exposed to the costs of disability. These responses
are consistent with adverse selection, whereby the long application process and strict work
limitations of the DI system screen out worse self-insured workers. Accounting for household
self-insurance and the implicit costs of utilizing the DI system, the model delivers novel
insights into the welfare implications of DI reform. Welfare gains from DI reforms are large,
especially ones that lower the costs of acquiring DI benefits and consequently provide income
support to households that value it highly. Accounting for the substantial insurance value
that expansionary reforms provide is important for drawing these welfare conclusions. On the
other hand, accounting for the self-insurance provided by spousal labor supply and pooled
family savings is also important, as it reduces welfare gains from DI reforms by as much as
25 percent.

URLhttps://scholar.google.com/scholar_url?url=https://knowledge.uchicago.edu/record/3325/files/Kellogg_uchicago_0330D_15696.pdf&hl=en&sa=X&d=13169594190053051241&ei=Y8lkYdvHJYW4ygTJnpmYCw&scisig=AAGBfm1myChIrNfg6a76qmQNkONwSsxi0A&oi=scholaralrt&hist=qi0bN5gA
Citation Key11925