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In the last twenty years the labor force participation rates of 45 to 54-year-old men have fallen 10.6 percentage points among non-whites and 4.4 percentage points among whites. I find that nearly half of this puzzling decline can be explained by the growth of the Social Security Disability program. By 1975, 6.22% of the prime-age non-white men and 3.57% of the white men were Social Security Disability beneficiaries. Despite the medical screening of applicants, I find in cross-section estimates an elasticity of .35 for beneficiary status with respect to benefit levels. As eligibility requirements have eased and as benefit levels have increased relative to earnings more men have dropped out of the labor force and become Social Security Disability beneficiaries.

Disability insurance. --- Disability insurance

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Disability insurance.

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Disability insurance

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In most disability insurance programs, beneficiaries lose some or all of their benefits if they earn above an earnings threshold. While intended to screen out applicants with high remaining working capacity, earnings limits can also distort the labor supply of beneficiaries. This paper develops a simple framework to evaluate this trade-off. It uses a reduction in the earnings limit in Hungary to examine screening and labor supply responses. The findings show that the policy changed selection into the program modestly, but it reduced labor supply significantly. Viewed through the lens of the model, these findings suggest that the earnings threshold should be higher.

Disability insurance.

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Disability insurance --- Labor supply