Why Do Disability Insurance Claims Increase During Recessions

David Cutler, Ellen Meara, Wilson Powell, Seth Richards-Shubik, Susan Stewart

NBER Disability Research Center Paper No. NB 15-03
Issued in September 2015

Applications for federal Disability Insurance rise in recessions, and recent research suggests that the type of individual who applies may vary with the business cycle as well. While the rise in disability applicants in the Great Recession was larger in volume than in any prior recess, disability application rates rose considerably, roughly 30%, although this increase was smaller than would have been predicted based on prior recessions. Using multiple waves of the Health and Retirement Study, we examine the characteristics of individuals applying for disability benefits and trends in disability and labor market outcomes among older adults from 2000 through 2012. We find that reports of a functional limitation, rather than diagnoses, were the biggest predictor of disability applications during the Great Recession among the older working age adults examined. Application rates for those with functional limitations were higher when the onset occurred during the Great Recession. Disability insurance is a more important, and more often exercised choice for workers during recessions, even though their patterns of work and earnings look remarkably similar across cohorts.

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