NB20-17: The Minimum Wage and Social Security Disability Insurance

The appropriate level of the minimum wage is an active area of policy debate, and the optimal minimum wage depends on its behavioral effects. There is considerable debate regarding the effects of minimum wage policies on earnings and employment (e.g., Card and Krueger, 1995; Neumark and Wascher, 2008; Dube, Lester, and Reich, 2010; Neumark, Salas, and Wascher, 2014; Meer and West, 2016; Clemens and Wither 2019; Reich, Allegretto, and Godoey 2017; Jardim et al. 2018). To our knowledge, no previous research has examined the effects of these policies on the Social Security disability programs (DI and SSI). Theoretically, the effect is ambiguous. On the one hand, we may expect that upward pressure on the minimum wage may reduce employment and, in turn, increase the demand for benefits (Autor and Duggan 2003; Duggan et al 2016). Onthe other hand, higher wages for low-income earners relative to the average wage in the economy may lower the effective replacement rate (defined as the ratio of potential benefits to potential earnings) and thereby reduce the demand for benefits. Which effect dominates requires empirically estimating the effect of minimum wage policies on program enrollment.
We will investigate the effects of changes in federal, state, and local minimum wages on DI and SSI enrollment and (pending data availability from SSA) outcomes such as applications, awards, and terminations. We will leverage the minimum wage variation across and within geographic areas, discussed in detail below. We will account for the possibility that changes in minimum wage may be endogenous. We will investigate whether trends in pre-program enrollment systematically differ in those areas that raise their minimum wagerelative to those that do not. Similarly, we will consider geographic areas near state borders to consider geographic areas that are similar in their characteristics but are affected by very different minimum wage policy changes.