To Work for Yourself, for Others, or Not at All? How Disability Benefits Affect the Employment Decisions of Older Veterans

The U.S. Department of Veterans Affairs’ Disability Compensation (DC) program provides disability benefits to nearly one in four U.S. military veterans and has annual expenditures of $77 billion. We examine how the receipt of DC benefits affects the employment decisions of Vietnam‐era veterans, making use of variation in eligibility resulting from a 2001 policy change that increased access to the program for veterans who served with “boots on the ground” in the Vietnam theater but not for other veterans of that service era. We find that the policy‐induced increase in program enrollment decreased labor force participation and induced a substantial switch from wage employment to self‐employment. The latter finding suggests that an exogenous increase in income allowed some older veterans to realize an ambition to start their own business or to retire gradually through self‐employment. We estimate that one in three veterans who entered the DC program due to this policy change left the labor force, estimates in the same range as those from recent studies of the Social Security Disability Insurance (SSDI) program, and that 30 percent of marginal recipients transitioned into self‐employment.