Why Do Social Security Disability Claims Go Up During a Recession?

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The number of people receiving Social Security Disability benefits has risen 25 percent since the beginning of the recession in 2007. That has caused some people to theorize that people who have lost their jobs as a result of the economic downtown are “gaming the system” and fraudulently collecting SSDI.

New research from a University of California at Berkley economist disproves that theory. 

According to the Wall Street Journal:

Economist Jesse Rothstein set out to test that theory. He reasoned that if the increase is being driven by unemployed workers gaming the system, there ought to be a correlation between expiring jobless benefits rising disability claims. After all, there’s no need to file for disability insurance — often a long, involved process — if you can still draw an unemployment check.

When Mr. Rothstein looked at the data, however, he found no such correlation. When the unemployment rate started rising in 2008 and 2009, the government extended unemployment benefits, leading to a drop in the number of people exhausting their payments. Yet the number of people filing for disability kept on rising. In more recent years, the government has cut back unemployment benefits, leading to an increase in expirations, but the number of disability applications has remained flat or even slowed.

If disabled workers aren’t cheating the system — as Rothstein found and as has been our experience — why do Social Security Disability filings go up during a recession or economic downturn?

It has to do with the job market and the availability of alternative work for people who suffer a disabling injury or illness.

Federal disability rules allow workers to get benefits only if they have an “impairment” that prevents them from working. But Mr. Rothstein notes that the ability to work isn’t necessarily independent of the labor market.

A construction worker who hurts his back, for example, might be able to get a desk job during good economic times; when unemployment is high, however, making such a career switch could be much harder. Moreover, companies are much more likely to make accommodations for existing workers who become disabled than to hire a disabled worker — so a person with a disability who loses a job might well struggle to find a new one.

Mr. Rothstein says his findings suggest that “really what’s going on is that there are people who are disabled who may in good markets be able to get jobs but in difficult market can’t.”

You can read more about Rothstein’s research on Social Security Disabilty here and at the Wall Street Journal.

 

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