The rise in disability recipiency and the decline of unemployment
By: David H. Autor [and] Mark Duggan
Contributors: Duggan, Mark G. (Mark Gregory); Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 01-15; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 01-15.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2001
Place of publication: Cambridge, MA
Language: eng
Number of pages: 41
Description: 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. Keywords: disability, social security, unemployment, inequality, low skilled workers.
Notes: Title from cover.

"May 2001."; "May 2001, revised from July 2000."--Abstract.

Includes bibliographical references (p. 36-38).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.

Supported in part by the Steven H. Sandell Center for Retirement Research.