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Disability rolls rise, skew labor data
Recent research finds a 60% jump in number of disability recipients keeping unemployment low.
January 22, 2003: 11:32 AM EST
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - The U.S. unemployment rate would be substantially bigger if not for a 60 percent surge in the number of Americans drawing disability benefits since 1984, according to recent research by economists at MIT and the University of Chicago.

The unemployment rate was 6.0 percent in December, according to the latest Labor Department data, but that figure only counts the portion of a group of people, called the "labor force," who are unemployed and looking for work.

The "labor force," 142.5 million strong, does not include people who draw disability benefits from the Social Security Administration (SSA). As of December 2002, there were about 5.5 million adults getting disability benefits, totaling about $4.6 billion a month.

After 1984, when Congress made the process for screening potential disability recipients -- figuring out who's "disabled" and who's not -- a lot easier, the number of disability recipients more than doubled, jumping from 2.6 million to 5.3 million, according to research by MIT economist David Autor and Chicago economist Mark Duggan, which will be published in MIT's Quarterly Journal of Economics in February.

What's more, disability payments are indexed to keep up with the average wage earned by workers in the broader economy. As wages for high-school drop-outs and other low-skilled workers fell relative to wages of skilled workers in the 1990s, disability benefits got more and more appealing as they got closer and closer to matching the wages low-skilled workers would have earned if they'd been working.

Meanwhile, health-care costs moved relentlessly upward, making the Medicare benefits available under the SSA disability plan ever more attractive.

If this combination of an easier application process, falling relative wages and rising health costs -- along with a few other factors -- hadn't occurred, many low-skilled workers might still be in the labor force -- enough to push the unemployment rate up a half percentage point by 1998, according Autor and Duggan.

As of January 1998, the U.S. unemployment rate was 4.4 percent; without the "disability effect," it might have been 4.9 percent. Disability rolls have grown about 14 percent since 1998, so the "disability effect" might have an even bigger impact on the current unemployment rate.

And this trend's not close to slowing down, the economists said -- they expect another 40 percent jump in disability rolls in the next decade.  Top of page

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