Disability insurance rejection rates and the labor supply of older workers

We investigate the effects of trying to mitigate moral hazard in the Disability Insurance (DI) program by raising the stringency of the screening process for applicants. We do so by studying a dramatic increase in rejection rates for the DI program in the late 1970s, which varied substantially across the US states. We find that each 10% rise in denial rates led to a statistically significant 2.8% fall in labor force non-participation among 45-64 year old males. We also find that the denial rate increases effectively targeted their incentive effects to more able individuals, according to an anthropometric measure of disability.