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Alex Gelber at the Council of Economic Advisers

About 9 million Americans receive benefits from the federal disability insurance program known as Social Security Disability Insurance (SSDI). The program is designed to provide financial support for those no longer able to work, due to a disability. One important question is whether people are reluctant to return to work because they do not want to lose their SSDI benefits.

In early June, the White House invited Professor Alex Gelber to share his research on disability insurance at the Council of Economic Advisers (CEA), chaired by Jason Furman. The CEA Chairman, assisted by two Members of the Council and a staff, serves as the lead Ph.D. economist for the President. Professor Gelber’s paper, co-authored with Timothy Moore (George Washington University) and Alexander Strand (Social Security Administration), examined administrative data on all new SSDI beneficiaries from 2001 to 2007.

In order to be eligible for SSDI benefits over the long run, recipients must keep their monthly earned income below the Substantial Gainful Activity (SGA) limit, which is about $1100/month for most recipients. Based on a theory that this may disincentive people to return to work, members of Congress, including Speaker Paul Ryan (R-WI), have proposed replacing the income limit with a graduated benefit offset that begins at a much lower level of income than SGA. For example, for every $2 earned, the benefit could be reduced by $1, beginning at only $300 in monthly income.

Professor Gelber’s study examined the impacts of SSDI benefits on beneficiaries’ earnings. “Among the SSDI recipients we study, our results suggest that a graduated benefit offset would do little to increase earnings,” says Professor Gelber. “Crucially, our results suggest that SSDI has both higher value to recipients, and lower distortionary costs to economic welfare, than some researchers previously believed.”

Through the channel of the impact on earnings, the revenues gained by the federal government as a result of cutting SSDI benefits would be relatively modest, notes Professor Gelber. “The cost of the program is projected to fall as a fraction of the GDP,” he says. “More Americans self-report a disability than the number of people who are on SSDI. We wouldn’t expect this to be true if there were sufficiently many people on the program who aren’t actually disabled.”