Disability, Earnings, Income and Consumption

We determine the prevalence of disability and examine how a wide range of outcomes change with disability. The outcomes we examine include employment, hours, earnings, income and consumption. We have five main findings. First, disability rates are high. We find that nearly one-fifth of male household heads 22-64 in the PSID are currently disabled. Approximately, 30 percent of our sample has a disabling condition at some time during 1968- 2003. Of these disabled, over 51 percent have a condition that lasts more than 3 years. 30 percent are severely disabled and 20 percent are both chronically and severely disabled. In terms of life-time prevalence, we find that a person reaching age 60 has a 54 percent chance of having been disabled at least once during his working years and a nearly 40 percent chance of experiencing a chronic disability. Second, disability is associated with much worse outcomes. Ten years after disability onset, those with chronic and severe disability condition have seen their earnings decline by 61%, income by 46%, food plus housing consumption by 25%, and food consumption by 15%. In addition, 66 percent of these most disabled individuals do not work ten years after onset. Third, these outcome measures differ sharply across disability groups. The previously mentioned declines for the most disabled are over twice as large as those for the average disabled. Fourth, our findings indicate the partial but incomplete role individual savings, family support and social insurance play in reducing the consumption drop following disability. Despite the various government programs available, about one-fifth of the disabled have incomes below the poverty line in the long term. Fifth, we find a noticeable fall in employment and earnings prior to the onset of reported disability.