The minimum wage and DI claims
Introduction
There is long-standing interest in labor and public economics on the impact of labor-market conditions on the U.S. federal disability insurance (DI) program. For example, Fig. 1 shows the national time series of the unemployment rate and DI claims (indexed to 1 in 2001). Claims are strongly counter-cyclical. Autor and Duggan (2003) have argued that the decline in demand for low-skilled workers has been an important factor in the increase in DI beneficiaries over time. Black et al. (2002) and Charles et al. (2018) have shown that DI participation and payments are responsive to changes in local labor demand from booms and busts in resource prices. Somewhat surprisingly, the minimum wage, a policy also affecting labor demand, has received less attention.
Holding employment, hours, and true disability status constant, increases in the hourly wage from an increase in the minimum wage can affect short-run DI claims along a number of dimensions. First, an increase in the wage increases the likelihood of attaining a quarter of coverage and over time increases the likelihood an individual is insured for DI benefits. Second, conditional on being insured, an increase in the wage increases the likelihood that earnings exceed the Substantial Gainful Amount limit, and reduces the likelihood an insured individual is eligible for DI benefits. Third, conditional on being eligible, an increase in the wage will increase earnings, decrease the DI replacement rate, and increase the opportunity cost of DI participation relative to the outside option. Allowing employment and hours to adjust along with hourly wages further complicates the potential impact on DI claims: if increases in the minimum wage reduce employment for low-skilled individuals—a point of considerable debate among labor economists—then DI becomes more attractive relative to labor force participation. Overall, the impact of the minimum wage is theoretically ambiguous. This article examines whether, as a first-order approximation, changes in the minimum wage find their way in the short run into changes in DI claims.
Section snippets
Sample and regression framework
The sample is a state-year panel of DI claims for 2002–2017 for the 50 states and the District of Columbia, calculated from the Social Security Administration’s State Agencies Monthly Workload (MOWL) Dataset. Continuing disability reviews, reconsiderations, and child DI claims are excluded, as are claims processed in Guam, Puerto Rico, the expanded service team sites in Arkansas, Mississippi, Oklahoma, and Virginia, and federal claims centers.
These are matched to the effective minimum wage, the
Results
Column 1 of Table 2 shows parameter estimates in (1) for the full sample of years, controlling for state population, unemployment rate, GDP per capita, state and year effects. The estimated elasticity based on the sum of the contemporaneous and lagged coefficients (shown at the bottom of the table) is −0.068, economically small and not statistically different than zero based on the standard error clustered at the state level (shown in parentheses). Column 2 omits the Great Recession years; the
Conclusion
Across specifications that control for an array of factors deemed important in previous minimum wage studies, including state-level economic conditions, such as unemployment and economic activity, and the Great Recession, the minimum wage has had no short-run effect on all DI claims over the last two decades. Similarly, there is no impact of the minimum wage on DI awards (results not shown). For concurrent claims by lower-skilled workers, the estimated impact was fairly large, but not
Acknowledgments
The research reported herein was supported by the Center for Retirement Research at Boston College pursuant to a grant from the U.S. Social Security Administration funded as part of the Retirement Research Consortium. The opinions and conclusions are solely mine and should not be construed as representing the opinions or policy of the Social Security Administration, any agency of the Federal Government, Boston College, or Syracuse University.
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