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The Effect of State Workers’ Compensation Program Changes on the Use of Federal Social Security Disability Insurance




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    •  The authors’ affiliations are, respectively, Department of Economics, College of William and Mary, E-mail:; School of Public and Environmental Affairs, Indiana University, Bloomington, IN, E-mail: Simon acknowledges support from the National Institute on Disability and Rehabilitation Research (NIDRR) through the Employment Policy RRTC funded to Cornell University (Grant No. H133B040013). We thank Richard Burkhauser, John Burton, Xuguang Guo, Andrew Houtenville, and David Stapleton for sharing data that made this project possible. We are grateful to Richard Burkhauser, Susanne Bruyere, John Burton, Mark Duggan, Xuguang Guo, Judith Hellerstein, Andrew Houtenville, and David Stapleton for advice and encouragement, and two anonymous reviewers. We thank Anna Choi, James Hunsberger, and Aparna Lhila for outstanding research assistance.


In addition to traditional forms of private and public medical insurance, two other large public programs help pay for costs associated with ill health. In 2008, Workers’ Compensation (WC) insurance provided $57.6 billion in medical care and cash benefits to employees who are injured at work or contract a work-related illness, and Social Security Disability Insurance (DI) provided $106 billion to individuals who suffer from permanent disabilities and are unable to engage in substantial gainful activity. During the 1990s, real DI outlays increased nearly 70 percent, whereas real WC cash benefit spending fell by 12 percent. There has been concern that part of this relationship between two of the nation’s largest social insurance programs may be due to individuals substituting toward DI as state WC policies tightened. We first show that this negative correlation between the national series does not hold over time within states, the level at which a causal relationship should operate. We then test for a causal effect of changes in WC enrollment on DI applications and new DI cases within states over time, using state policy (the maximum WC benefit) as an instrument for WC enrollment. Despite a strong first stage fit, we find no statistically significant evidence that WC tightening caused DI rolls to increase, although the standard errors are large enough that we cannot reject effects of substantial magnitude. We conclude it is unlikely that state WC changes were a meaningful factor in explaining the rise in DI during our study period of 1986–2001, although further study using individual level data is warranted.