Measuring the Spillover to Disability Insurance Due to the Rise in the Full Retirement Age
The increase in the full retirement age in the Social Security program provides exogenous variation in the generosity in the Disability Insurance program, based only on birth year. We exploit this variation to estimate how responsive SSDI applications are to the financial incentive to apply. We find that a one percentage point decrease in the retirement-to-disability benefit ratio leads to a 0.28 percentage point increase in the DI application rate for the sample, which represents a 6.8 percent increase in applications per two years. When weighted to account for sampling design, we estimate that this change in the financial incentive accounted for about 5 percent of the SSDI applications in 2008. However, we do not find a corresponding increase in SSDI receipt based on the financial incentives. In addition, we find little difference in the covariates for individuals who eventually receive SSDI, suggesting that the increase in applications may increase the administrative costs of the SSDI program, but should not have a dramatic impact on the long-term financial solvency of the program.
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