An Economic Analysis of the Operation of Social Security Disability Insurance

Abstract

Social Security Disability Insurance (DI) is federally financed but state administered. States vary widely both in benefit application rates and the rates at which applications are denied. Since the decision to apply depends on the likelihood of qualifying for benefits and since denial rates are influenced by a state's applicant pool, a simultaneous model of application and denial rates is developed in this paper. In addition, recent DI funding problems have induced substantial tightening of applicant screening, at least in some states. Estimates are presented which suggest that while this change may have eliminated some unqualified applicants, it is also likely to have increased cross-state inequities in screening.

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