Where will workers go after their jobless benefits expire? Probably not on disability.

December 3, 2013

On Monday I asked what will happen to the 1.3 million workers whose unemployment benefits will vanish on Dec. 28 if Congress doesn't renew its emergency aid program. These people won't all be able to find jobs right away, so what will they do?

People wait in line at a job fair employer hiring event in Portland, Ore. (Rick Bowmer / AP)
People wait in line at a job fair employer hiring event in Portland, Ore. (Rick Bowmer / AP)

One oft-mentioned possibility is that many of these workers will just apply for disability insurance. After all, haven't we heard that more and more Americans are qualifying for these benefits in recent years?

But there's little evidence to suggest this will actually happen. In a recent working paper from the National Bureau of Economic Research, three economists found that, by and large, American workers haven't been going on disability after their unemployment benefits have lapsed.

The paper, co-authored by Andreas Mueller, Jesse Rothstein and Till M. von Wachter, starts off by asking why the number of applications to the Social Security Disability Insurance program appears to rise when unemployment is high:


The answer isn't obvious, and there are a few possibilities: One is that there may be lots of Americans who could qualify for disability but prefer to grit it out and keep working — until they lose their job. Another theory is that it's easier for people with moderate disabilities to qualify for aid if there are fewer suitable jobs to go around.

A third possibility is that workers are using disability as a "safety net" once their unemployment insurance runs out. This would have huge implications for the U.S. economy, since, unlike jobless benefits, disability insurance tends to be permanent. Once people join the rolls, they rarely leave — even if the economy picks back up again.

Mueller, Rothstein, and von Wachter explored this third hypothesis: Are workers using disability as an extended safety net when their jobless benefits lapse? And the answer seems to be: No. The economists exploited the fact that different states have pared back their jobless benefits at different times during the downturn and found that disability applications don't rise in response.

A previous study by Rothstein had reached a similar conclusion: Across the United States, disability applications actually rose when unemployment insurance became more generous, and applications fell after unemployment insurance got cut back. This suggests that people aren't using disability as an extended form of jobless benefits.

If that theory is correct, then we shouldn't expect a large expansion in the disability rolls when more than 1.3 million Americans see their unemployment benefits expire at the end of this year. But there's still the worry that many of those workers will drop out of the labor force.

Explaining the broader rise in disability

Of course, this still leaves plenty of questions. There are now 8.8 million workers receiving disability benefits, a number that has doubled since 1995. Why the increase?

That's still subject to much debate. The Center on Budget and Policy Priorities has stressed the simple demographic fact that the U.S. population is getting older. By contrast, economists David Autor and Mark Duggan point to reforms Congress made in 1984 to loosen the eligibility criteria, the fact that disability benefits have gotten relatively more generous, and the fact that the eligible workforce expanded as more women entered the labor force.

And why do the rolls rise during recessions? In an earlier interview with the Wall Street Journal, Rothstein offered an alternative explanation: Federal disability rules allow people to qualify for benefits if they have a condition that "impairs" them from working. But if there are fewer jobs to go around, it's easier to meet this standard. (A construction worker who hurts his back may be able to find a desk job in boom times, but possibly not during a recession, for example.)

Further reading:

--Unemployment benefits will soon expire for 1.3 million workers. Where will they go?

-- An interview with Harold Pollack on the disability insurance program.

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Ezra Klein | December 3, 2013