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.
Seventy percent of workers receiving disability assistance fall into three large diagnostic groups: mental disorders (about 32 percent), musculoskeletal system and connective tissue (29 percent), and nervous system and sense organs (about 9 percent). The growth in these conditions explains more than 80 percent of the rise in disability payments since 1996. These medical gray areas can involve a judgment call.
Work Option
I believe that recipients of the aid are typically in pain, but many have a choice between suffering at work and going on disability. In boom times, the work option may seem more attractive, but as labor options contract, a steady check from the federal government can seem the better choice. The recession surely explains much of the 24 percent increase in the number of people receiving Social Security disability insurance since 2007.
The big fear is that those who went on disability during a downturn stay out of work forever, even as the economy recovers. The combination of a generous welfare system and a sharp recession is what led to long-term unemployment in Western Europe starting in the early 1970s.
Ten years ago, Alberto Alesina, Bruce Sacerdote and I wrote a paper trying to understand why Americans worked so much harder than Europeans. Those differences are starting to look less stark.
The political response to the low labor-force participation is to offer policies aimed at job creation. The right favors tax cuts. The left favors subsidized help through building roads and other infrastructure, and favoring particular sectors, such as “clean energy.”
I’m skeptical that either approach can succeed, especially in helping the lower-skilled. Most sensible government investments require well-trained employees, such as engineers, not high school dropouts. Even if tax cuts help private-sector activity, there is little guarantee that businesses will start hiring from the bottom of the labor market.
We can do better by replacing the archaic system we have now with ones that offer better incentives to work. We have too many distinct programs (unemployment insurance, food stamps, housing vouchers) that penalize earnings, collectively creating a huge implicit tax that discourages work among the poor.
Duggan and David Autor, a Massachusetts Institute of Technology economist, have proposed reforming disability insurance in ways that encourage companies to keep employing disabled workers and impose higher costs on those that produce more disabled workers.