Labor supply response to overpayment notifications: Evidence from Social Security Disability Insurance

Abstract

We use administrative data to provide evidence that notification of work-related overpayment debt reduces subsequent work activity by Social Security Disability Insurance beneficiaries. We exploit randomness in the timing of the overpayment debt notification by comparing beneficiary work activity before and after notification. Our results show that the share of overpaid beneficiaries engaging in substantial work activity declined by 8% over the 2-month period following an overpayment notification, which reduced to 4% after accounting for the ongoing declining trend in work activity. This evidence that overpayment debt notification discourages work highlights the need for policies to curtail overpayments.