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The impact of disability benefits on labor supply: Evidence from the VA’s disability compensation program (Autor et al. 2016)

Absence of conflict of interest.

Citation

Autor, D. H., Duggan, M., Greenberg, K., & Lyle, D. S. (2016). The impact of disability benefits on labor supply: Evidence from the VA’s disability compensation program. American Economic Journal: Applied Economics, 8(3), 31-68. http://www.aeaweb.org/aej-applied/ [Impact of DC enrollment and benefit amount]

Highlights

  • The study examined the impact of Disability Compensation (DC) enrollment and benefit amount on labor force participation and earnings. The authors also examined the impact of the expansion of eligibility for DC benefits on labor force participation and earnings; see profile here .
  • The authors estimated statistical models to compare outcomes for Vietnam-era Army veterans who served with “boots on the ground” (BOG) with those who served “not on the ground” (NOG) who did not fight directly in the conflict, before and after the implementation of the Type 2 diabetes policy change in 2001. The authors used administrative data from the U.S. Army Office of Economic and Manpower Analysis, the U.S. Department of Veterans Affairs (VA), and the Social Security Administration (SSA).
  • The increases in DC enrollment due to the expansion in eligibility for DC in 2001 were associated with reductions in labor force participation and earnings. Increases in DC benefit amounts due to the expansion in eligibility were also associated with reductions in labor force participation.
  • The quality of causal evidence presented in this report is moderate because it was based on a well-implemented nonexperimental design. This means we are somewhat confident that the estimated effects are attributable to DC enrollment and benefit amounts, but other factors might also have contributed to the findings.

Intervention Examined

DC

Features of the Intervention

DC provides payments to veterans who have had medical conditions caused or aggravated by their military service. Veterans may apply through VA to determine their eligibility. A VA rating board reviews and evaluates each claim to confirm if the medical condition is service-connected and, if so, assigns a severity rating that will help to determine the DC benefit amount. DC is a tax-free benefit that is available to the veteran throughout the remainder of his or her life. In addition, veterans may also collect other disability-related benefits such as Social Security Disability Insurance (SSDI).

DC covers a range of defined medical conditions. In 2001, DC was extended to type 2 diabetes for BOG Vietnam-era veterans. In 2010, coverage was extended to conditions including ischemic heart disease, Parkinson’s disease, and B-cell leukemia for these veterans. As of 2010, coverage was extended to chronic fatigue, fibromyalgia, post-traumatic stress disorder, unexplained illnesses linked to environmental exposure, and other conditions for Gulf War-era veterans. As a result of these eligibility expansions, participation in DC grew from about 9 percent of veterans in 2001 to 19 percent in 2015.

Features of the Study

The authors conducted a nonexperimental analysis to compare outcomes of male BOG versus NOG Vietnam-era Army veterans. Those with BOG and type II diabetes were eligible for DC starting in 2001, whereas those NOG might have received disability assistance through other programs, such as SSDI, but would not be eligible for DC coverage for type 2 diabetes. The authors used a statistical method called instrumental variables to examine the relationship between increases in DC enrollment and benefit amounts related to the expansion in eligibility for DC in 2001 and outcomes of labor force participation and earnings.

The study used administrative data from the U.S. Army Office of Economic and Manpower Analysis, the VA, and the Social Security Administration. The sample included 1.351 million veterans born from 1946 to 1951 and began service in the Army from 1966 to 1971. Because the SSA did not provide identifiable individual data, the authors analyzed a data set of cells composed of five to nine veterans with the same BOG or NOG status who were also matched by characteristics that included sex, race, death year, year of birth, start year, education at entry, Armed Forces Qualification Test score quintile, loss year, and region. Of the BOG veterans in the sample, about 11 percent were non-White and 48 percent were high school graduates. Of the NOG veterans in the sample, about 12 percent were non-White and 37 percent were high school graduates.

Findings

Employment

  • The study found a negative relationship between DC enrollment and labor force participation, as well as between DC benefit amount and labor force participation. A 1 percentage point increase in DC enrollment is associated with a 0.18 percentage point decrease in veterans’ labor force participation; a $1,000 increase in disability benefits is associated with a 0.79 percentage point decrease in veterans’ labor force participation.

Earnings and wages

  • The study found a positive relationship between DC enrollment and earnings. An increase in DC enrollment from 0 to 20 percent is associated with an increase of about 10.4 percent in total income.

Considerations for Interpreting the Findings

The authors noted that veterans who could be matched to SSA data could systematically differ from those who could not. However, this was primarily an issue for veterans who died before 1997. Because the authors excluded these veterans from the analysis, which examined outcomes starting in 1998, this was not an issue for the analysis or findings.

Causal Evidence Rating

The quality of causal evidence presented in this report is moderate because it was based on a well-implemented nonexperimental design. This means we are somewhat confident that the estimated effects are attributable to DC enrollment and benefit amounts, but other factors might also have contributed to the findings.

Additional Sources

Autor, D. H., Duggan, M., Greenberg, K., & Lyle, D. S. (2015). The impact of disability benefits on labor supply: Evidence from the VA’s disability compensation program. Unpublished manuscript.

Reviewed by CLEAR

May 2020

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