Some More on Disability Insurance

A blog about business, finance, and economics.
Sept. 16 2010 3:08 PM

Some More on Disability Insurance

It's been a while since I felt an article was so widely misconstrued as my story this week on Social Security Disability Insurance . As can be seen in the comments section, a number of readers felt that I was accusing SSDI recipients of fraud or scams. This puzzles me, because I went out of my way *not* to characterize the situation that way. Look, every government program has some fraud, but I have absolutely no reason to believe that SSDI has more than an average share. On the contrary, as many readers pointed out, SSDI benefits are typically difficult to receive, so there's some reason to predict that SSDI has less fraud than average.

But the existence or nonexistence of fraud was never the point of the article. The point of the article was that the massive growth in the rolls of SSDI indicate that it is functioning differently than the program was originally conceived. That is a bad way to conduct public policy in general, and specifically, as the Washington Post noted on Tuesday, it risks financially straining the SSDI system to the point of bankruptcy .

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At any rate, a couple of other things have been published that I think are worth noting. In a comment on my story, Annie Lowrey of the Washington Independent wrote: "(The link between unemployment and disability is well-established —so much so that some economists suggest expanding unemployment benefits to make sure workers don’t take the more expensive disability benefits.) But joblessness does cause worse health outcomes: Losing your job makes you sick . And the longer the duration of employment, the higher the risk of declining health, especially mental health." (I think she meant "the longer the duration of UNemployment.") This is a good point which I came across in my initial research but didn't have room for in the article. Moreover, the interaction between mental illness and physical disability is a factor as well; one study I read indicated that it is much worse for men than women. These details only reinforce my belief that a good goal in some SSDI cases would be to get the recipients back into the work force in some capacity. (Yes, there are government programs in place to do that, but they are not very effective.)

Also: The San Francisco Fed published a paper on Monday called " Labor Force Participation and the Future Path of Unemployment " (hat tip: Rortybomb ). In it, three economists state succinctly what some of my readers have had trouble accepting: "Labor force participation among prime-age men has fallen for two main reasons: increased access to Social Security disability benefits and decreased demand for less-skilled workers (Autor and Duggan 2003). These two factors are related. Decreased demand for less-skilled workers has driven down relative wages of high school dropouts. That in turn has increased the extent to which disability benefits are able to replace earned income." The numbers are striking: "The number of disability insurance applications has increased by 26.4% over the past two years, suggesting that many prime-age men who recently left the labor force may never come back."

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