The Rise in Disability Recipiency and the Decline in Unemployment

MIT Department of Economics Working Paper No. 01-15

Center for Retirement Research at Boston College Working Paper No. 2002-07

62 Pages Posted: 31 May 2001

See all articles by David H. Autor

David H. Autor

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Mark Duggan

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2002

Abstract

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

JEL Classification: I120, J64, J65

Suggested Citation

Autor, David H. and Duggan, Mark G., The Rise in Disability Recipiency and the Decline in Unemployment (September 2002). MIT Department of Economics Working Paper No. 01-15; Center for Retirement Research at Boston College Working Paper No. 2002-07. Available at SSRN: https://ssrn.com/abstract=271732 or http://dx.doi.org/10.2139/ssrn.271732

David H. Autor (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Mark G. Duggan

University of Maryland - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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