Workers' Applications to Social Insurance Programs When Earnings and Eligibility Are Uncertain.

A worker's decision whether to apply for public transfers may depend not only on his expected level of forgone labor earnings but also on his degree of uncertainty about such earnings. This article 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. Copyright 1998 by University of Chicago Press.