Saturday, June 15, 2013

New Study: Re: Social Security Disability

Economists have long known that disability filings go up during recessions, however, they aren’t sure why (but Fox News thinks they have the answer). One 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.

A Congressional Budget Office study says that when opportunities for employment are plentiful, some people who could qualify for disability benefits find working more attractive. Conversely, when employment opportunities are scarce, some of those people participate in the disability program instead. Indeed, applications to the program increased -- during and immediately following the recessions that occurred in the early 1990s, in 2001, and over the past few years --- as did the number of people receiving disability benefits.

Stephen Goss, chief actuary of the Social Security Administration, acknowledged that when employers are hiring lots of people, disabled people (just like any one else) also finds it easier to land a job. That only makes sense.

But last year the Wall Street Journal reported that many desperate Americans may be seeking refuge in the disability program as a last resort after their unemployment insurance and savings run out. The WSJ had cited quotes from two studies.

They say the studies showed a correlation between when people seek Social Security disability payments and when their unemployment benefits are exhausted. The WSJ said, "Some economists say that connection shows many people now view the system as an extended unemployment program."

I didn't see any links to the studies they quoted, but their first citation was, "A recent study by Boston College research economist Matthew Rutledge, found that jobless individuals are significantly less likely to apply for disability when unemployment insurance is extended by Congress and significantly more likely to apply when [unemployment payments are] ultimately exhausted."

The other citation was, "White House Council of Economic Advisers Chairman Alan Krueger and Columbia Business School instructor Andreas Mueller found that 10% of jobless workers age 50 to 65 with access to less than $5,000 were likely to file for disability benefits when their unemployment benefits expired, while 1% of such people sought benefits when they had 50 weeks of unemployed benefits left."

The Wall Street Journal piece was often referred to (and quoted) in several other articles, including the Huffington Post. This may be the reason why another formal study was recently done on this subject.

University of California, Berkeley economist Jesse Rothstein set out to test that theory that jobless Americans were using disability insurance as a form of extended unemployment benefits. So he thoroughly examined all the possible causes and effects. He reasoned that if the increase is being driven by unemployed workers "gaming the system", then there ought to be a correlation between expiring jobless benefits and rising disability claims.

When Mr. Rothstein looked at the data, however, he found there was no such correlation -- and that the rise in disability filings in recessions is NOT due to people exaggerating real disabilities or through outright fraud.

Study from Jesse Rothstein, University of California, Berkeley and NBER - April 2013 (PDF)

Abstract (source)

Disability insurance applications and awards are counter-cyclical. One possible explanation is that unemployed individuals who exhaust their Unemployment Insurance benefits use DI as a form of extended benefits. I exploit the haphazard pattern of Unemployment Insurance (UI) extensions in the Great Recession to identify the effect of UI exhaustion on DI application, using both aggregate data at the state month level and micro-data on unemployed individuals in the Current Population Survey.

I find no indication that expiration of UI benefits causes DI applications. Estimates are sufficiently precise to rule out effects of meaningful magnitude.

In his study, Jesse Rothstein lays out a very in-depth and comprehensive examination of the data; and he also uses tables and mathematical equations to make his argument. He covers all the details (and history) of all the various forms of unemployment compensation insurance, as well as data from the Social Security Administration. While although a complete understanding of this white paper is far above my pay grade, I did manage to single out a couple of other nuggets.

A disabled worker can receive SSDI benefits only if he or she has a functional impairment that prevents him or her from performing a previous job or from adjusting to other types of work. The worker’s age, education, and experience are considered in assessing his or her suitability for alternative employment; as the jobs available to a worker with a given profile likely depend on economic conditions. In principle, the medical eligibility determination does not consider the availability of positions, but in practice it seems likely that workers’ qualifications are judged relative to labor demand.

Last year the Congressional Budget Office did another study on this subject, and according to the Huffington Post: "The rise in America's ranks of disabled stems from an aging population, a surge in women workers, changes in the law in the 1980s and a terrible economy in which disabled people can't find jobs"...and that "the biggest jump in the disabled population came from aging Baby Boomers."

Last year the Fox News pundit-and-chief Bill O'Reilly, had claimed that the rise in disability claims is another sign of President Obama's scheme to increase government dependency. "So why has the disability rate increased more than 100 percent? I'll tell you why. It's a con. It's easy to put in a bogus disability claim." He also said, "Right now President Obama and the Democratic Party lead the league in entitlement spending and promoting a nanny state philosophy." But O'Reilly doesn't differentiate between SSDI claims and those who were actually awarded Social Security disability benefits. In 2012 there were 2,820,800 SSDI claims, but there were only 983,600 awards.

As of May 2013, there were 8,877,921 disabled workers receiving Social Security disability --- up from 7,114,753 when President Obama first took office, for a net gain of 1,763,168 (not up 100% as Bill O'Reilly claims.) By comparison, there were 5,052,895 when George W. Bush first took office, for a net gain of 2,061,858 (and that was before all 8.7 million people lost their jobs from December 2007 to June of 2009.)

Recently on Fox News the hosts on Fox & Friends used last month's jobs report to indict unemployment and disability benefits, claiming that they encourage poor job search behavior -- and that it keeps the labor force participation rate low. In fact, unemployment and disability benefits do not pull people out of the workforce, and the low labor force participation is the result of unrelated demographic changes.

So I would strongly disagree with the folks at Fox News. And if I were ever asked, I would tell them that the labor force participate rate is at the lowest since 1979 because manufacturing in the U.S. peaked in 1979 --- and has been declining ever since, because jobs continued to be offshored.

But then again, what do I know? If I was so smart, then I wouldn't be a 57-year-old unemployed man with only a GED who lost his home and car and is now waiting on an appeal for a Social Security disability claim in the aftermath of the worse economy since the Great Depression while trying to subsist of food lighten up Bill.

* At the Daily Kos Jennifer Kates has a couple of excellent and awesome posts about Social Security disability and the politics behind it.

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