Asset accumulation and labor force participation of disability insurance applicants

This paper provides empirical evidence of the existence of forward-looking asset-accumulation behavior among disability-insurance applicants, previously examined only in the theoretical literature. Using panel data from the RAND Health and Retirement Study, I show that rejected applicants for Social Security Disability Insurance (SSDI) possess significantly more assets than accepted applicants immediately prior to application and exhibit lower attachment to the labor force. These empirical results are consistent with the theoretical prediction in Diamond and Mirrlees (1978) and Golosov and Tsyvinski (2006) that certain individuals with high unwillingness to work maximize utility by planning in advance for their future disability insurance application. Because the existing empirical literature on disability insurance does not account for this intertemporal channel, it may underestimate the total work-disincentive effect of SSDI. (C) 2015 Elsevier B.V. All rights reserved.

Asset accumulation/Disability insurance/Labor force participation/disability insurance/Asset accumulation/Disability/Disability/Economics of the Elderly,/Economics of the Handicapped/Non-labor Market Discrimination/Social Security/Health Behavior/Participation/Labor supply

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