The Effect of the SSI Student Earned Income Exclusion on Education and Labor Supply

Abstract

Youth with disabilities face financial constraints to attaining post-secondary education and encounter strong labor market disincentives when considering employment opportunities. Encouraging human capital development through employment and education could help young Supplemental Security Income (SSI) recipients transition off SSI reliance and improve their long-run economic self-sufficiency. I study the effect of the Student Earned Income Exclusion (SEIE), an education- and work-incentive for youth with disabilities receiving SSI benefits. The SEIE enables SSI recipients under age 22 to exempt $1,930 of their monthly earnings from the SSI benefits determination if they are enrolled in school. Using the Survey of Income and Program Participation (SIPP) and a regression discontinuity design, I compare changes in SSI recipients’ education and labor decisions in the months surrounding the strict age-22 SEIE eligibility cutoff. I find the SEIE causes SSI recipients to increase school enrollment by 8.6 percentage points and increase employment by 8.4 percentage points. The findings suggest that the SEIE helps relax binding financial constraints for SSI recipients to attend college while revealing a substantial preference for employment among these recipients.