Some 8.9 million Americans were receiving federal disability payments in May, up 1.8 million, or 25%, since the recession began in 2007. The big increase is troubling to economists and policymakers because the program, administered by the Social Security Administration, is expensive, and because once workers go on disability, they rarely come off.
Economists have long known that disability filings go up during recessions, but they aren’t sure why. Perhaps the most worrisome theory is that displaced workers are essentially using disability insurance as a form of extended unemployment benefits, either by exaggerating real disabilities or through outright fraud.
University of California, Berkeley economist Jesse Rothstein set out to test that theory. He reasoned that if the increase is being driven by unemployed workers gaming the system, there ought to be a correlation between expiring jobless benefits rising disability claims. After all, there’s no need to file for disability insurance — often a long, involved process — if you can still draw an unemployment check.
When Mr. Rothstein looked at the data, however, he found no such correlation. When the unemployment rate started rising in 2008 and 2009, the government extended unemployment benefits, leading to a drop in the number of people exhausting their payments. Yet the number of people filing for disability kept on rising. In more recent years, the government has cut back unemployment benefits, leading to an increase in expirations, but the number of disability applications has remained flat or even slowed.
Mr. Rothstein’s findings — which are still preliminary — held up when he looked at state-level data, and even when he used data from the Current Population Survey — the same survey used to calculate the unemployment rate — to look at individual cases.
Mr. Rothstein did find one clear correlation: When the unemployment rate rose, so did disability filings. So if workers aren’t cheating the system, what’s going on?
Federal disability rules allow workers to get benefits only if they have an “impairment” that prevents them from working. But Mr. Rothstein notes that the ability to work isn’t necessarily independent of the labor market.
A construction worker who hurts his back, for example, might be able to get a desk job during good economic times; when unemployment is high, however, making such a career switch could be much harder. Moreover, companies are much more likely to make accommodations for existing workers who become disabled than to hire a disabled worker — so a person with a disability who loses a job might well struggle to find a new one.
Mr. Rothstein says his findings suggest that “really what’s going on is that there are people who are disabled who may in good markets be able to get jobs but in difficult market can’t.”
Just because people aren’t cheating the system doesn’t mean the rise in the disability rolls isn’t a concern. Economic research has found that the disability system is mostly a one-way street: Once people start receiving benefits, they rarely go back to work, even if the job market improves enough that they might find jobs. Mr. Rothstein said it’s important to find ways to fix the system to encourage people who can work to do so.
