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Workers' Applications to Social Insurance Programs when Earnings and Eligibility are Uncertain

Brent Kreider

Journal of Labor Economics (JOLE), October 1998, 848-877

A worker’s decision whether to apply for public transfers may depend not only on his expected level
of foregone labor earnings but also on his degree of uncertainty about such earnings. This paper provides
theory and evidence about the effects of earnings and eligibility uncertainty on participation decisions.
The application rate to the Social Security Disability Insurance program is estimated to be about 15 percent
higher than it would be in the absence of earnings risk. As an application to tax policy, optimal marginal wage
tax rates may be higher than indicated in previous analyses involving wage uncertainty.