The Sharp Rise in Disability Claims

Source: John Merline, Federal Reserve Bank of Richmond, Region Focus, Vol. 16 nos. 2-3, Second/Third Quarter 2012

Are federal disability benefits becoming a general safety net?

One of the often-told stories of the anemic economic recovery has been the dreary prospects for workers. As of July 2012, there were 811,000 more long-term unemployed than when the recession officially ended in June 2009, and there were 412,000 more who had given up looking for work. The Bureau of Labor Statistics’ expanded unemployment measure was 15 percent in July 2012.

As a result, discouraged workers are increasingly dropping out of the labor force. While the number of people with jobs has climbed 2.7 million since June 2009, the pool of Americans who aren’t in the labor force at all has shot up by 7.5 million.

A great many of these people will likely never come back to the workforce even if the economy does rebound: not because they’ve aged into retirement but because they’ve signed up instead to get disability benefits — joining the federal government’s Social Security Disability Insurance (SSDI) program. This program, started in the late 1950s, was meant to provide much-needed benefits to those who were too disabled to work, but weren’t yet eligible for Social Security benefits. The current massive exodus of workers to the disability rolls could have worrisome implications for the solvency of the SSDI program — which is scheduled to become insolvent in less than four years — as well as the federal government’s broader entitlement spending problem. The shift could also cut the growth potential of the U.S. economy by permanently shrinking the available pool of labor….
Related:
The Unsustainable Rise of the Disability Rolls in the United States: Causes, Consequences, and Policy Options
Source: David H. Autor, National Bureau of Economic Research Working Paper No. 17697, December 2011
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Supporting Work: A Proposal for Modernizing the U.S. Disability Insurance System
Source: David H. Autor, and Mark Duggan, The Brookings Institution and The Hamilton Project, December 2010

Social Security Disability Insurance: Participation Trends and Their Fiscal Implications
Source: Congressional Budget Office, Economic and Budget Issue Brief, July 22, 2010

The Impact of Unemployment Insurance Extensions on Disability Insurance Application and Allowance Rates
Source: Matthew S. Rutledge, Center for Retirement Research at Boston College Working Paper No. 2011-17, October 2011

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