Disability: Taking a turn for the better for labor markets

Disability enrollment among working-age people has seen a steep increase over the past several decades (for historical backdrop, see this fedgazette article). But more recently, the trend has seen its first extended and significant change in course, and that bodes well for tight labor markets.

There are two large federal disability programs: Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI). From 2000 to 2013, total enrollment in those programs among Ninth District states increased by 46 percent and 86 percent, respectively. But since then, through 2017, enrollments have seen no growth; SSDI enrollment actually declined by 2 percent.

Enrollment trends since 2000 vary among district states, as does the timing of the plateau phase. But the overall trend is unmistakable: Disability enrollments in both programs are charting a fundamentally different course (Charts 1 and 2).

Many factors are likely behind this change in trend. A deep analysis of these trends is beyond the scope of this article. But a few factors (and one straw man) are worth noting. For example, an intuitive explanation is that those on disability are getting healthier and re-entering the workforce. This is unlikely, however; both SSI and SSDI have strict caps on work earnings, and exceeding these caps results in loss of stipends and government-sponsored health care (Medicare for SSDI; Medicaid for SSI). Past research has found that few people on either SSI or SSDI ever leave disability programs and return full time to the workplace.

Instead, what’s likely happening is that older recipients of both programs are reaching the age at which they become eligible for (and transfer to) the more traditional, old-age Social Security benefits. At the same time, the number of workers that apply for and are awarded benefits from these disability programs peaked in 2010 and has trundled steadily lower ever since (Chart 3).

A stronger job market is likely having an impact as well. Recent Census reports have found that lower-income households have seen some of the largest annual income gains of late, which changes some of the calculus for those applying for disability. Expansion of the individual health care market during this period under the Affordable Care Act, including premium subsidies for low-income individuals, also may have had some effect.

Even seemingly mundane administrative changes may be playing a role. The approval process for receiving benefits is lengthy – several years for those who go through the appeal process after being initially denied. Since 2010, the Social Security Administration, which runs both disability programs, has reportedly cut administrative expenses by 10 percent and reduced its workforce by 3,500 employees. Recently, field offices in Milwaukee and Chicago have been closed or consolidated, and a similar fate is expected in Baltimore. Hundreds of part-time “contact stations” have also been closed. While many services are online, in-person advocacy for a disability award is less convenient in terms of time and especially resources given that, by definition, those seeking disability are not working.