Household labor search with disability shock and the social value of the Disability Insurance

Abstract

Social Security Disability Insurance (DI) is the largest income transfer program for protecting the working-age population in the US from being unable to work by negative health shock. Despite its substantial growth, concerns exist regarding potential drawbacks that may discourage DI recipients from rejoining the workforce, as DI recipients are not allowed to keep their DI benefits if they return to work. In this paper I propose a household search model of labor supply to evaluate the value of Disability Insurance to married couples in the United States, incorporating both search frictions and joint household labor decisions. Structural parameter estimates indicate that overlooking these joint household decisions can lead to misunderstanding of the true value of Disability Insurance.