Social security disability insurance and older workers

The objective of this study is to estimate how individuals respond to policies designed to reduce the financial cost of the Social Security Disability Insurance (SSDI) program. In this study, I develop a dynamic stochastic discrete choice model of work, leisure, and application for SSDI benefits for single workers and for married couples. I estimate the structural parameters of the model, using first three waves of the Health and Retirement Study (HRS), allowing for unobserved heterogeneity in preferences. The model is shown to fit to the data well. Based on the estimated parameters, three policies aimed at reducing the number of applications and subsequently the number of recipients are simulated: reducing the SSDI benefit amount by half, lowering the acceptance rate of applications by half, and lowering renewal rate of SSDI benefits by half. The results of the policy experiments show that all three policies can successfully reduce the number of applicants and recipients. Individuals who would receive low benefits and/or earn high wages stop applying. Among the three policies, reducing the renewal rate has the biggest impact. The results also show that the disabled reduce the application rate more do those who are not disabled. Policy experiments which reduce errors in the SSA\u27s acceptance also are performed. They show that reducing the Type I error (rejection of an application from a truly disabled individual) and the Type II error (acceptance of an application from an able individual) in a symmetric fashion increases the number of applications for and recipients of disability benefits and total disability benefit payment