JSIT21-01: The Effect of the SSI Student Earned Income Exclusion on Education and Labor Supply

Abstract

The SSI program pays about $50 billion per year to 8.7 million low-income, disabled or aged Americans, but it requires recipients to earn less than $1,673 per month to remain eligible. This income threshold can be particularly onerous to young adults considering attending college but need money for basic needs. My work is the first to study the effect of the Student Earned Income Exclusion (SEIE) – an SSI policy which provides an incentive for young adults with disabilities to attend school and work. In the absence of SEIE, SSI beneficiaries receive a maximum of $794 per month but this amount decreases by 50 cents for each dollar of earned income. The 50 percent earned income marginal tax rate embedded in the SSI policy can discourage employment. However, the SEIE allows SSI recipients under age 22 who attend school regularly to exclude up to $1,930 of their monthly earnings before SSI benefits are reduced. I study whether the SEIE affects education and labor supply decisions by removing these employment disincentives. Using the Survey of Income and Program Participation (SIPP), I compare changes in the education and labor decisions of SSI recipients around the strict SEIE eligibility cutoff at age 22. Using a regression discontinuity design, I find that SSI beneficiaries who are just a few months shy of 22 are more likely to enroll in school, more likely to work, and more likely to work while enrolling in school compared to those just older than 22 and therefore ineligible for SEIE.