Disability insurance recipients are disproportionately older and less educated
25 Jan 2015 Leave a comment
in labour economics, labour supply, occupational choice, welfare reform Tags: David Autor, disability insurance, social insurance, welfare reform
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David Autor found that the effective replacement rate of Social Security disability insurance payments for labour earnings with SSDI benefits has also risen in recent decades due both to the rising value of in-kind Medicare benefits and to a subtle interaction between the benefits formula and rising income inequality in the U.S.
This interaction causes the effective generosity for low-wage workers to rise and encourages older workers with limited education to go on the disability benefit because its income replacement rate for what they can earn in the workforce can be as high as 80% when Medicare is included. As Autor and Duggan explain:
The rapid expansion of the beneficiary population has three main causes.
First, a set of congressional reforms in 1984 to Disability Insurance screening led to rapid growth in the share of recipients suffering from back pain and mental illness. Because these disorders have comparatively low mortality, the average duration of disability spells—and hence the size of the recipient population—has increased.
Second, a rise in the after-tax DI income replacement rate—that is, the ratio of disability income to former labour earnings—strengthened the incentives for workers to seek benefits.
Third, a rapid increase in female labour force participation expanded the pool of insured workers. The aging of the baby boom generation has contributed little to the rise of receipt of disability benefits, while improvements in population health have likely reduced the incidence of disabling medical disorders.
Utopia, you are standing in it! 
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