Assume that the current Disability Insurance

(DI) benefit for those who are unable to work is $X per day and that DI benefits go to zero if a worker accepts a job for even 1 hour per week. Suppose that the benefit rules are changed so those disabled workers who take jobs that pay less than $X per day receive a benefit that brings their total daily income (earnings plus the DI benefit) up to $X. As soon as their labor market earnings rise above $X per day, their disability benefits end.

Draw the old and new budget constraints

(label each clearly) associated with the DI program, and analyze the work-incentive effects of the change in benefits.