Wednesday, December 28, 2011

Social Security Disability - Last Resort for the Unemployed

More than 10 percent of Americans between the ages of 50 and 65 apply for Social Security disability benefits right after they run out of unemployment insurance.

Unemployed workers with significant and persistent illnesses or injuries can qualify for SSDI despite the fact that some applicants would continue to work if they still had a job.

As more jobless people run out of unemployment insurance, they are turning to a last resort to make ends meet: government disability benefits.

Two new studies cited by The Wall Street Journal find that when jobless Americans exhaust their unemployment benefits, they turn to Social Security disability benefits to survive. The number of Americans receiving Social Security disability benefits has risen to 10.6 million since 2002 -- an increase of 47 percent, the WSJ reports.

With more and more people coming to depend on Social Security, the program's long-term prospects are starting to seem endangered. Most people who start receiving disability insurance stay in the program until they retire, and the average person in the disability program ultimately receives more than $240,000 in benefits, according to a 2006 study by economists David Autor and Mark Duggan cited by the White House's Council of Economic Advisers.

More than 10 percent of Americans between the ages of 50 and 65 without access to $5,000 apply for Social Security disability benefits right after they run out of unemployment insurance, according to the White House's Council of Economic Advisers. By contrast, less than 1 percent apply for the disability program when they are still about 50 weeks away from exhausting their unemployment benefits. A November report by Boston College research economist Matthew Rutledge reached a similar conclusion, finding that jobless Americans are more likely to apply for disability benefits once they are about to run out of unemployment insurance.

Out-of-work Americans are now without jobs for longer than ever. The average duration of unemployment reached a record high of 40.9 weeks in November, according to the Bureau of Labor Statistics. And it's thought that cutting unemployment benefits doesn't only hurt the people receiving them. The United States would lose nearly 500,000 jobs by the end of 2014 if Congress does not continue the extension of unemployment insurance, according to the CEA.

News that jobless Americans are relying on more disability benefits arrives as Social Security is increasingly coming under attack. Texas governor Rick Perry called Social Security a "Ponzi scheme" at a Republican presidential debate, and Rep. Paul Ryan, who many consider an intellectual leader of the Republican party, has said he agrees.

Congress recently agreed to extend unemployment benefits and the payroll tax cut for two months, but as the battle has become more partisan, it is unclear whether House Republicans will agree to extend unemployment insurance for another year.

Per the White House report:

An important potential avenue for leaving the labor force, especially for older job seekers, is to apply for disability benefits through the Social Security Disability Insurance (SSDI) program. SSDI applications generally rise when unemployment is high.

Unemployed workers with significant and persistent illnesses or injuries can qualify for SSDI despite the fact that some applicants would continue to work if they still had a job.

According to recent research, the average SSDI enrollee stays in the program for many years and ultimately receives benefits of over $240,000 (Autor and Duggan 2006). Workers on SSDI rarely return to the labor force, resulting in a loss to society of the economic contribution those workers could have made. Thus, keeping the long-term unemployed in the labor force should be a priority.

Krueger and Mueller (in progress) find that applications for SSDI by unemployed workers older than age 50 increase as these workers get close to exhausting their unemployment benefits. This increase is driven by applications from individuals with limited assets, defined as those who reported that they would be unable to come up with $5,000 if needed to cover unexpected expenses in the event of an emergency; application rates change very little for individuals with greater access to resources.

By providing workers who might otherwise apply for SSDI more time to find a job, EUC and EB apparently keep more of the long term unemployed actively in the labor force and thus increase the potential length of their productive work life.

The extended benefits programs do not appear to have had a differential impact on the relative job-finding rates of unemployed persons who have been out of work for different lengths of time. Job-finding rates are consistently lower for those who have been unemployed longer, but the rates for the different cohorts delineated by unemployment duration have stayed roughly parallel since 2003.

* As reported by the Wall Street Journal, via the Huffington Post

Related Post: Republicans versus Social Security

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