This article provides new evidence about the impact of Social Security Disability Insurance on male labor force participation decisions based on estimates from a structural model of applications, awards, and state‐contingent lifetime income flows. The lifetime framework makes it possible to consider long‐term opportunity costs associated with early labor force withdrawal and the disincentive to applications resulting from the statutory waiting period before benefits may be received. Estimation techniques account for the self‐selected nature of the pool of applicants when predicting the individual‐specific probability of acceptance and the opportunity costs of applying.

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% 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.

Recent evidence from Bound, Brown, and Mathiowetz (2001) and Black, Sanders, and Taylor (2003) suggests that reporting errors in survey data routinely violate all of the classical measurement error assumptions. The econometrics literature has not considered the consequences of fully arbitrary measurement error for identification of regression coefficients. This paper highlights the severity of the identification problem given the presence of even infrequent arbitrary errors in a binary regressor. In the empirical component, health insurance misclassification rates of less than 1.3% generate double-digit percentage point ranges of uncertainty about the variable's true marginal effect on the use of health services.