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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 eligibility expansion]

Highlights

  • The study examined the impact of a 2001 expansion in eligibility for Disability Compensation (DC) to type 2 diabetes for Vietnam-era veterans on labor force participation, earnings, and receipt of public benefits. The authors also examined the impact of receiving DC benefits and amount 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) Veterans who did not fight directly in the conflict, from 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.
  • The implementation of expanded DC coverage and benefits in 2001 resulted in reductions in labor force participation and earnings among impacted veterans as well as increases in the receipt of disability benefits.
  • The quality of causal evidence presented in this report is low because the authors did not ensure that the groups being compared were similar before the intervention. This means we are not confident that the estimated effects are attributable to the expansion in eligibility for Disability Compensation (DC); other factors are likely to 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 the Department of Veterans Affairs (VA) to determine their eligibility. A VA rating board reviewed and evaluated each claim to confirm if the medical condition was service-connected and, if so, assigned a severity rating that helped to determine the DC benefit amount. DC is a tax-free benefit available to the veteran throughout the rest of his or her life. In addition, veterans may collect other disability-related benefits such as Social Security Disability Insurance (SSDI).

DC covers a range of defined medical conditions. In 2001, DC began to cover to type 2 diabetes for BOG Vietnam-era veterans. In 2010, DC began to cover conditions including ischemic heart disease, Parkinson’s disease, and B-cell leukemia for these veterans. As of 2010, DC began to cover 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 study used administrative data from the U.S. Army Office of Economic and Manpower Analysis, the VA, and the Social Security Administration (SSA). The sample included 1.351 million veterans born from 1946 to 1951 who joined 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 the expansion of DC eligibility in 2001 and labor force participation. After the policy change, labor force participation was 0.18 percentage points lower per year among BOG veterans compared to NOG veterans.

Earnings and wages

  • The study found a negative relationship between the expansion of DC eligibility in 2001 and earnings.

Public benefit receipt

  • The study found a generally positive relationship between the expansion of DC eligibility in 2001 and receipt of public benefits. Compared to NOG veterans, BOG veterans had higher DC enrollment and SSDI enrollment, DC payments, and disability payments (DC + SSDI + Supplemental Security Income [SSI]) after the policy change. However, they had lower SSI enrollment compared to NOG veterans.

Causal Evidence Rating

The quality of causal evidence presented in this report was low because the authors did not ensure that the groups being compared were similar before the intervention. This means we are not confident that the estimated effects are attributable to the expansion in eligibility for DC; other factors are likely to 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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