The Effect of Disability Insurance on Spousal Labor Supply

Susan Chen, Purdue University

Current estimates of the work disincentive effects of the Social Security disability insurance (DI) program are much lower than past cohorts. These lower estimates occur despite increases in the generosity of the DI program and decrease in the stringency of the qualification rules for DI. One reason for the apparent decrease in the work disincentive effect may be the ability of husbands (or wives) to insure their spouses in the event of an adverse health shock. Using a new dataset that matches households who apply for DI to administrative data on DI application and award information, we find that the employment rate of husbands of DI applicants is higher in the case where their wives do not receive benefits compared to the case where they do. Similar results are also found for the wives of DI applicants.