Partial Benefits in the Social Security Disability Insurance Program: A Policy Alternative to Foster Work among the Disabled

Na Yin, Baruch College, City University of New York (CUNY)

This paper solves and calibrates a life-cycle model that characterizes rules of Social Security Disability Insurance (DI) and Retirement programs, and then predicts behavioral responses to a Partial Disability Benefit system that allows combining work earnings with disability benefits. The appeal of this policy hinges on the possibility of inducing applicants to self-select into a given disability level, while maintaining those with work capacity in the labor force, and therefore keep them contributing through labor taxes to the Social Security system, easing budgetary pressures of the system. Simulation results show significant increases in DI applications and rolls under a Partial DI system: most of the increases are due to increases in applications for and awards to partial benefits; full DI benefits applications and receipts drop substantially. Mean duration spent on DI decreases dramatically. It also shows a Partial DI system, under some conditions, could result in financial savings and individuals’ welfare improvements.