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The Rise in Disability Recipiency and the Decline in Unemployment

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Author Info
David H. Autor
Mark G. Duggan

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Abstract

Between 1984 and 2000, the share of non-elderly adults receiving benefits from the Social Security Disability Insurance (DI) and Supplemental Security Income (SSI) programs rose from 3.1 to 5.3 percent. We trace this growth to reduced screening stringency and, due to the interaction between growing wage inequality and a progressive benefits formula, a rising earnings replacement rate. We explore the implications of these changes for the level of labor force participation among the less skilled and their employment responses to adverse employment shocks. Following program liberalization in 1984, DI application and recipiency rates became two to three times as responsive to plausibly exogenous labor demand shocks. Contemporaneously, male and female high school dropouts became increasingly likely to exit the labor force rather than enter unemployment in the event of an adverse shock. The liberalization of the disability program appears to explain both facts. Accounting for the role of disability in inducing labor force exit among the low-skilled unemployed, we calculate that the U.S. unemployment rate would be two-thirds of a percentage point higher at present were it not for the liberalized disability system.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8336.

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Date of creation: Jun 2001
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Handle: RePEc:nbr:nberwo:8336

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Find related papers by JEL classification:
H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
I12 - Health, Education, and Welfare - - Health - - - Health Production

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  8. Diamond, Peter & Sheshinski, Eytan, 1995. "Economic aspects of optimal disability benefits," Journal of Public Economics, Elsevier, vol. 57(1), pages 1-23, May. [Downloadable!] (restricted)
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  9. Timothy J. Bartik, 2003. "Local Economic Development Policies," Staff Working Papers 03-91, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
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  12. Darius Lakdawalla & Dana Goldman & Jay Bhattacharya, 2001. "Are the Young Becoming More Disabled?," NBER Working Papers 8247, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  1. Sergi Jiménez-Martín & José M. Labeaga & Cristina Vilaplana Prieto, 2005. "A sequential model for older workers’ labor transitions after a health shock," Economics Working Papers 898, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  2. Roger Wilkins, 2003. "Labour Market Outcomes and Welfare Dependence of Persons with Disabilities in Australia," Melbourne Institute Working Paper Series wp2003n02, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
  3. Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," NBER Working Papers 8940, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Ron Smith & Gylfi Zoega, 2004. "Global Shocks and Unemployment Adjustment," DEGIT Conference Papers c009_003, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
    Other versions:
  5. Sergi Jiménez-Martín & José M. Labeaga & Cristina Vilaplana Prieto, 2006. "A sequential model of older workers' labor force transitions after a health shock," Health Economics, John Wiley & Sons, Ltd., vol. 15(9), pages 1033-1054. [Downloadable!]
  6. Mikhail Golosov & Aleh Tsyvinski, 2004. "Designing Optimal Disability Insurance: A Case for Asset Testing," NBER Working Papers 10792, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Amitabh Chandra, 2003. "Is the Convergence of the Racial Wage Gap Illusory?," NBER Working Papers 9476, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Mary C. Daly & Andrew J. Houtenville, 2002. "Employment declines among people with disabilities: population movements, isolated experience, or broad policy concern?," Working Papers in Applied Economic Theory 2002-24, Federal Reserve Bank of San Francisco. [Downloadable!]
  9. Harry J. Holzer & Paul Offner, 2001. "Trends in Employment Outcomes of Young Black Men, 1979-2000," JCPR Working Papers 245, Northwestern University/University of Chicago Joint Center for Poverty Research.
  10. Wouter Vermeulen, 2006. "Regional disparities in a small country? An analysis of regional unemployment and participation differentials in the Netherlands from 1975 to 2003," CPB Documents 113, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  11. Annemiek Vuren & Daniel Vuuren, 2007. "Financial Incentives in Disability Insurance in the Netherlands," De Economist, Springer, vol. 155(1), pages 73-98, March. [Downloadable!] (restricted)
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  12. Gabriel Aranovich & Jay Bhattacharya & Alan M. Garber & Thomas E. MaCurdy, 2009. "Coping with Chronic Disease? Chronic Disease and Disability in Elderly American Population 1982-1999," NBER Working Papers 14811, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Alan B. Krueger & Bruce D. Meyer, 2002. "Labor Supply Effects of Social Insurance," NBER Working Papers 9014, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Mikhail Golosov & Aleh Tsyvinski, 2003. "Designing optimal disability insurance," Working Papers 628, Federal Reserve Bank of Minneapolis. [Downloadable!]
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