To Work for Yourself, for Others, or Not at All? How Disability Benefits Affect the Employment Decisions of Older Veterans

Abstract

The U.S. Department of Veterans Affairs Disability Compensation (DC) program provides disability benefits to nearly one in five military veterans in the US and its annual expenditures exceed $60 billion. We examine how the receipt of DC benefits affects the employment decisions of older veterans. We make use of variation in program eligibility resulting from a 2001 policy change that increased access to the program for Vietnam veterans who served with "boots on the ground" in the Vietnam theater but not for other veterans of that same era. We find that the policy-induced increase in program enrollment decreased labor force participation and induced a substantially larger switch from wage employment to self-employment. This latter finding suggests that an exogenous increase in income spurred many older veterans to start their own businesses. Additionally, we estimate that one in four veterans who entered the DC program due to this policy change left the labor force, estimates in the same range as those from recent studies of the Social Security Disability Insurance (SSDI) program.

Association of Disability Compensation With Mortality and Hospitalizations Among Vietnam-Era Veterans With Diabetes

“…A cut in Social Security payments for adults born after December 31, 1916, was associated with unexpected decreases in mortality, potentially because affected beneficiaries were more likely to engage in postretirement work that may offer health benefits . Given prior evidence that disability compensation was associated with lower veteran employment rates, our results should reassure policy makers that veterans’ exit from the labor market was not associated with an increased mortality risk.…”

“…The payments are large in magnitude (reaching an annual maximum of $37 757 in 2021 for a veteran without dependents), not subject to federal or state income tax, typically made in perpetuity, and apply to individuals with lower socioeconomic status and worse health than the general population . Therefore, while prior research has largely focused on the influence of disability compensation on veterans’ employment decisions, disability compensation may also have important benefits for health.…”