Friday, December 28, 2012

What’s Driving Disability (and What to Do About It).

Harvard economist Edward Glaeser, writing for Bloomberg, discusses the research on the factors driving increased disability applications and the policies that might – and might not – help to keep the disabled on the job:

“The two primary alternative hypotheses for the rise are that either work has become less attractive or that disability insurance has become more attractive and available. The disability-claims approval process and the wider society itself have become more accepting of people receiving the benefits even if they have no visible ailment.”

“Duggan and Imberman argue that changes in the award formulas for recipients have made disability substantially more generous for poorer workers. For example, a male worker who is 30 to 39 and in the bottom 25th percentile of earnings distribution could expect disability insurance to pay 41 percent of his previous earnings in 1984 and 49 percent of his previous earnings in 2002.”

“The economists say the most important cause of the increasing number of recipients is the loosening of eligibility criteria. In 1984, Congress “shifted the criteria for DI eligibility from a list of specific impairments to a more general consideration of a person’s medical condition and ability to work.” As a result, the typical disability recipient today is far less likely to have an easily verifiable ailment.”

“As we reform the tax code, we must focus on providing stronger incentives to work, through the earned-income tax credit and reductions in the payroll tax for poorer Americans. The future of America depends on preventing a temporary economic crisis from becoming a permanent labor market catastrophe.”


Arne said...

I have heard a third hypothesis - that finding a job after becoming laid off has become more difficult, so that even though taking benefits is no more attractive than before, it is better than staying unemployed.

Andrew G. Biggs said...

You're right -- DI applications have long varied with the business cycle, showing that employabiltiy matters as well as the purely medical issues. The question is why, through both good and bad economic times, DI applications are rising. There's a secular trend that's distinct from the business cycle issues you raise.