Thursday, March 28, 2013

More on Disability: New Welfare or New Unemployment Insurance?

Some commenters have challenged our post on the increasing number of people on disability insurance, making the following claims:
1. The real cause of the increase in disability is a poor economy . . . and

2. That it’s substantially due to the declining health of the population, and particularly due to the fact that an aging population resulted in more Americans in the age range (50-64) where health problems are prevalent.
An authoritative discussion of the increasing disability rolls comes from MIT economist David H. Autor.

There is some validity to the claim that a poor economy leads to more people on disability. Quoting Autor:
The growth of the SSDI rolls is not solely due to changes in the program’s eligibility criteria, however. The labor market has played a key contributing role. Previous research has established that workers are most likely to apply for SSDI benefits following job loss, a fact underscored by the pronounced positive correlation between the national unemployment rate and the SSDI application rate. The secular decline in earnings and employment opportunities for U.S. workers with high school or lower education over the last three decades has also made SSDI an increasingly attractive option for job losers and long-term unemployed.
However, as with everything else associated with the welfare state, when you reward dependency, you will get more dependent people:
As highlighted by Autor and Duggan (2003), the effective replacement rate of labor 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 SSDI benefits formula and rising income inequality in the U.S. This interaction causes SSDI’s effective generosity for low-wage workers to rise as wages in the lower deciles of the distribution fall relative to the mean. Hence, absent any changes in the SSDI program, it is a near certainty that the deteriorating U.S. labor market for less educated workers would have caused SSDI applications to rise in recent decades. The Congressional liberalizations of the program enacted in 1984, however, allowed this surge in demand for benefits to translate into a substantial growth in the SSDI rolls.
As for the argument that people are becoming less healthy, that seems to be without much merit:
2.2 The role of population health and aging

The expanding size and cost of the SSDI program would not be inherently problematic if this expansion reflected a rising rate of disability among working-age adults and, moreover, if the program’s mounting expenditures enabled these individuals to maintain employment and self-sufficiency. Neither appears to be the case. Figure 6 shows that the fraction of middle-age adults reporting a disability has been roughly stable over the last two decades, averaging approximately 10 percent among both men and women.

Moreover, there is little evidence that the underlying health of the working-age population in the U.S. is deteriorating. For example, one of the most common and rapidly expanding diagnoses for individuals receiving SSDI awards is mental illness, which comprised more than 20 percent of SSDI awards in over the past decade. A recent study in the New England Journal of Medicine (Kessler et al. 2005) reports that the prevalence of mental disorders in the U.S. population was unchanged between 1990 and 2003. In the same interval, the rate of treatment of mental illness substantially increased—which in turn should have contributed to improved work-readiness among individuals coping with mental illness.

Using self-reported health data from the National Health Interview Survey, Duggan and Imberman (2008) find a substantial improvement between 1984 and 2004 in the average health of U.S. adults between the ages of 50 and 64. This age group is especially relevant because it accounted for 62 percent of all SSDI recipients in 2004. Reinforcing these conclusions, demographers Kenneth Manton and XiLiang Gu of Duke University (2001) find that the share of the population ages 65 and older suffering from a chronic disability fell by one-third between 1982 and 1999 (from 26.2 to 19.7 percent), with the largest drop between 1994 and 1999. In net, there is little reason to believe that the work capacity of adults with disabilities has declined in recent decades.

Perhaps surprisingly, the aging of the U.S. population—in particular, the passing of the baby boom generation into middle age—has made only a modest contribution so far to the growth of Disability Insurance. Calculations from Duggan and Imberman (2008) reveal that, holding age- specific rates of receipt of disability benefits at their 1984 base, the aging of the population between 1984 and 2004 explains only 6 percent of the increase in the fraction of non-elderly adults receiving Disability Insurance through 2004. The contribution of aging to program growth is numerically overwhelmed by the growth of SSDI recipients within given age groups.
The bottom line here is not that having a social safety net is a bad idea. It’s that it’s a good idea with huge dangers attached. The welfare state tends to take on a momentum of its own, with ever increasing dependency. But simply having people dependent on government is not nearly so bad as an ethos of dependency, in which people come to think that, as a matter of right, they have a claim on a decent lifestyle, regardless of work or effort. Europe is far down that path, and we see the results.

We seem to be following, pushed along by elites who benefit from change.

The table below (from Autor) tells the story.

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6 Comments:

Anonymous Anonymous said...

Anonymous here again. First of all I’m glad you finally found a somewhat scholarly source. Unfortunately, you are still missing some key points and twisting the research. First I’ll address your response to my last post, then I’ll explain what you miss in this one (heads up: it’s a lot).
LAST POST’S COMMENTS:
First you tried to refute my claim that much of the increase was due to the poor labor market. Now that you have posted an article proving my point, are you willing to admit that I was right and you were wrong? There’s no other way to read that interaction. You are aware DI is means-tested, right?
You then jump on my concession that there are undoubtedly some unworthy recipients of DI, as if this is a legitimate argument against the program. With no due respect, that’s not a serious position for somebody who likes to think of himself as a hard-nosed policy wonk. You should know that there is always a non-zero ideal level of inefficiency in any program. Same as there should be a non-zero level of risk. Believe it or not, the private sector isn’t perfectly efficient either, because perfect efficiency is impossible and inefficient even if it were. I suspect you do know this, but it only occurs to you and you only apply this thinking when you are arguing in favor of a policy change to your liking.
Your final two comments are especially priceless. First, you say you are “glad (I) can admit” that there are some undeserving recipients of DI. Then, in the very next sentence you write: “Apparently you are unwilling to admit that government programs have problems…” As the kids say, LMFAO!

5:09 PM  
Anonymous Anonymous said...

OK, on to what you have to say on this post. You do accurately sum up what it is that commenters such as myself disagreed with in your first post. Demographics and economic conditions are the main factors, along with a policy change to make DI more expansive, that are responsible for the increase. I’ll go through each of these, and explain why I don’t think you have done much scholarly research on the subject.
1. Labor market conditions. I’ve already pointed out that you disputed my claim that the poor economy results in increased DI expenditures in your comments on your previous post. I suppose you could try to weasel out of admitting you were wrong by splitting hairs and pointing out that you said the economy was improving. That’s not the issue. Most of the increases occurred while it was not, and even if the economy has since begun adding jobs, there is still an enormous surplus of unemployed workers whose incentive to apply for DI does not change if the economy is adding jobs, what matters is if they have a job. (On a side note, you also said that the slow job growth is indicative of poor policy. I agree; the austerity of the past few years has been detrimental. As you know, I’ve encouraged you to write a post about what you see as the failure of Keynesian policies so I can take joy in pointing out how confused you are about macroeconomics or fiscal policies.)
Where you go wrong is in the next paragraph, when you claim: “with the welfare state, when you reward dependency, you will get more dependent people.” Of course when you expand the eligibility of a safety net program it will have more recipients – that’s the point! But your claim is that you will have more fraudulence or exploitation of the safety net, which you do not substantiate with any convincing evidence. This brings me to my next point.
2. You claim the increase is about fraud, I claim it’s about demographics and health. Let’s look at the facts, starting with the evidence Autor cites. First, he says that the increase in SSDI among the poor after the policy change of 1984 is proof of fraud. But this policy change expanded coverage for mental health and chronic pain, which are especially prevalent among the poor, so his argument is not convincing (more on this later). Second, he cites statistics about the average health of the working age population. This ignores the changing demographics I mentioned, namely the aging population. Further, looking at average health is not the relevant measure. Rich, healthy people are bringing up the average health of the population, but this does not reflect the health patterns of the poor. Similarly, when it comes to mental disorders, the overall rate of all mental health disorders is not the relevant measure.

5:10 PM  
Anonymous Anonymous said...

1.
2. Demographic factors DO have a big role. You only talked about age, while ignoring the increased female participation rate in the labor market. This has dramatically increased the number of eligible recipients of SSDI. The Social Security Administration has studied the effect of these demographic changes and estimates that accounting for age and sex changes account for half the increase in SSDI since 1975 (http://www.ssa.gov/OACT/TR/2012/lr5c5.html).
3. The expansion of SSDI criteria in 1984.
In your previous post, you compared current SSDI numbers with 1962 without mentioning this policy change, with the implication that more people are faking conditions. If you want to argue that chronic pain and mental illness are not worthy of disability benefits that is one thing. It’s another to claim that the higher proportion of people on DI suffering from these afflictions in 2011 versus 1962 is evidence of increased fraud, without mentioning the 1984 policy change (under Reagan, I might add), which changed the eligibility requirements to cover more of these recipients. Here’s what the CBO had to say about the non-demographic causes of increased SSDI:
In 1984, lawmakers enacted the Disability Benefits Reform Act, which expanded the ways in which people could qualify for the DI program. That legislation, in addition to reversing several of the cost-containment measures enacted as part of the 1980 Social Security Disability Amendments, 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. The legislation allowed applicants to qualify for benefits on the basis of the combined effect of multiple medical conditions, each of which taken alone might not have met the criteria. It also allowed symptoms of mental illness and pain to be considered in assessing whether a person qualified for admission to the DI program, even in the absence of a clear-cut medical diagnosis. (http://www.cbo.gov/sites/default/files/cbofiles/attachments/43421-DisabilityInsurance_screen.pdf)

5:11 PM  
Anonymous Anonymous said...


1. You are free to think that having a safety net is a bad idea. That’s a rather extreme ideological position, and not one that very few economists will agree with. More importantly, it reveals how you approach all public policy. Rather than objectively weigh the merits of the safety net, you are driven by an extreme ideology that obscures you from considering the benefits of such programs. You are only open to evidence that confirms this bias. My next point demonstrates this further.
2. Lastly, you conclude with a comment about Europe’s safety net being the source of its ills. Add the European crisis to fiscal policy as subjects I am now positive you know very little about. If you think the problem with Europe right now is the size of their safety net (rather than austerity and a poorly structured currency union), please answer the following questions: Why are the countries in Europe with the strongest safety net programs doing well while the countries with small safety nets are the ones in crisis? Look at the share of government social expenditures in Sweden and Germany (high) versus Ireland, Greece, Spain, and Portugal. Tell me how the welfare state is to blame. Or look at their relative debt loads prior to the crisis, and the direction of these debt loads, and find one convincing example to show that debt or the welfare state was the problem. If anything, the European crisis is a case study in the merits of a safety net.

FINAL REQUEST: PLEASE WRITE A POST ABOUT HOW THE RECESSION PROVES KEYNESIAN FISCAL POLICY WRONG AND HOW THE EUROPEAN CRISIS PROVES THAT SAFETY NETS ARE A BAD IDEA! You have made both of these claims, now I’d love to see you try to find evidence to support them.

5:12 PM  
Blogger John McAdams said...

First you tried to refute my claim that much of the increase was due to the poor labor market.

I never denied that economic conditions have a role. I certainly deny that that's all that's going on.

Haven't you heard Obama explain how many jobs have been created since the bottom of the recession? Haven't you noted that unemployment has ticked down?

But disability rolls have increased.

You then jump on my concession that there are undoubtedly some unworthy recipients of DI, as if this is a legitimate argument against the program. With no due respect, that’s not a serious position for somebody who likes to think of himself as a hard-nosed policy wonk.

The "no respect" is mutual. The issue is not that there are some unworthy recipients. It's that there seem to be too many, and certainly more than there used to be.

Did you not read Autor on the fact that health changes can't account for any of the increase?

Of course when you expand the eligibility of a safety net program it will have more recipients – that’s the point!

The problem is that more recipients mean less work, and less productivity. Look up the concept "labor supply effects." Society can only do this up to a point, and beyond that point it is in big trouble.

The Social Security Administration has studied the effect of these demographic changes and estimates that accounting for age and sex changes account for half the increase in SSDI since 1975 (http://www.ssa.gov/OACT/TR/2012/lr5c5.html).

But then you have the other half to explain.

But this policy change expanded coverage for mental health and chronic pain, which are especially prevalent among the poor, so his argument is not convincing (more on this later).

But Autor cited studies showing that they things are not more prevalent than they were.

Why are the countries in Europe with the strongest safety net programs doing well while the countries with small safety nets are the ones in crisis?

The countries in trouble are the ones most like the U.S. -- large diverse countries. Not only the southern rim, but the U.K. and France. They have much more extensive welfare states than the U.S. You somehow seem to think that we can be like Sweden. Most Americans would not want that, and Sweden is becoming a lot less "like Sweden."

You can make excuses about the "monetary union," and it's true that without the Euro currencies could float down (bringing home the fact that countries are living beyond their means). But the simple fact is that they can't pay for their welfare states, in spite of tax rates a bit higher than the U.S.

10:12 PM  
Blogger John McAdams said...

PLEASE WRITE A POST ABOUT HOW THE RECESSION PROVES KEYNESIAN FISCAL POLICY WRONG

You are a disciple of Paul Krugman, right?

Keynesianism says that recessions (and depressions) are the result of a lack of "aggregate demand." Supposedly, government deficits increase "aggregate demand," and thus can get us out of a recession.

But we have had a long series of trillion (with a "t") dollar deficits, and the recovery has been terribly sluggish.

Care to explain how that is consistent with Keynes?

10:15 PM  

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