Take-up and labour supply response to disability insurance earnings limits

This research project studies the impact of disability insurance earnings limits (such as the substantial gainful activity threshold in the United States) on program take-up and labour supply. Earnings limits are supposed to screen workers with substantial remaining working capacity. However, they can also inefficiently distort beneficiaries’ labour supply by inducing them to work less in order to remain in the program. Our work will make three contributions to the existing evidence base on earnings limits: (1) we develop a model to understand the trade-off between the screening and labour supply effects of earnings limits; (2) we study a policy reform in Hungary to estimate both effects at the same time; (3) we provide evidence on a decrease in the earnings limit which has previously not been studied. Our empirical work is based on high-quality administrative data from Hungary (Admin3 of CERS Databank), including data on employment status, wages, and benefit receipt.

This project is joint work with Andrea Weber (Central European University and IZA) and Daniel Prinz (World Bank and Harvard University).

The project is financed by the Steven H. Sandell Grant. The Center for Retirement Research sponsors the annual Steven H. Sandell Grant Program for scholars in the field of retirement or disability research and policy. The program is funded by the U.S. Social Security Administration.