Labor Supply, Disability Benefits and Mental Illness

In this paper we build and estimate a structural labor supply model that explicitly models the budget constraint facing mentally ill individuals eligible for SSI benefits. Our results suggest that the labor supply behavior of this group is not very responsive to wage changes. This suggests that it may be non-economic factors that drive labor supply behavior of this group. Our structural model allows for policy simulations. These simulations indicate that raising the implicit tax rate on earnings of subsidizing wages may increase labor supply among this group, albeit by modest amounts.