Pethokoukis, Economics, U.S. Economy

How disability benefits are creating a nation of dependent Julias (and Julians)

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Roughly 11 million Americans — including workers and their family — now receive Social Security disability benefits, three times the number 30 years ago. Total economic costs, including both payments and loss of output, are more than $300 billion a year, according to JP Morgan. Economists David Autor and Mark Duggan trace the rapid expansion of SSDI more to an easing of eligibility rules than the aging baby boom generation or the declining health of US workers. Another reason: a decline in job opportunities for low-skill workers.

Just as alarming is how government is turning millions of kids into permanent wards of the state through the federal Supplemental Security Income program, which provides cash benefits to low-income families with a disabled child. As Richard Burkhauser and Mary Daly note in a new paper for the San Francisco Fed, about 1.3 million disabled children received benefits at a cost of $9.3 billion in 2011 vs. 71,000 children at a cost of $40 million when the program began in 1974.

“Program growth increased most rapidly immediately following the 1990 Supreme Court decision in Sullivan v. Zebley, which greatly expanded disability eligibility criteria for children,” the researchers write. “Welfare reform in 1996 tightened eligibility standards and slightly reduced the rolls for one year. However, since that time, recipients and expenditures have steadily increased.” Indeed, poor parents have an incentive to get their kids diagnosed with disability.

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But, as Burkhauser and Daly ask, is this necessarily a bad thing? Although the program may be an inefficient method of income redistribution, money is flowing to the poor and near-poor. Unfortunately, there is a major negative unintended consequence: Lifetime dependency. Burkhauser and Daly:

Many beneficiary children from low-income families are so profoundly disabled that they would never be able to enter the workforce as adults. But others, especially the less clear-cut cases that have driven growth since the Zebley decision, might be able to hold a job with appropriate accommodation and training. However, once these children are on SSI, they rarely come off.

Hemmeter, Kauff, and Wittenburg  find that nearly two-thirds of SSI disabled children beneficiaries move directly onto SSI disabled adult rolls. Very few attempt to work thereafter. Moreover, only about 60% of those who do not move directly onto SSI disabled adult rolls are employed at age 19.

Thus, most SSI disabled children beneficiaries graduate from the program into what is likely to be permanent status as an SSI disabled adult beneficiary. And, if they are denied these benefits, they turn to other forms of welfare. This outcome is unintended. But it is quite costly both for the beneficiaries, who live their lives at or near the poverty threshold, and for taxpayers, who fund lifetime benefits.

The paper doesn’t offer any reform ideas, although there have been plenty devised to reform SSDI which might be applicable, including the tightening of eligibility requirements, better differentiating between the profoundly and partially disabled, and extending private disability insurance to virtually all U.S. workers that would nudge companies into trying to keep disability rates low. Faster economic growth and tighter labor markets wouldn’t hurt, either.

21 thoughts on “How disability benefits are creating a nation of dependent Julias (and Julians)

  1. Until a study accounts for the strong geographic component in SS disability, I am going to go with no jobs. The entire state of West Virginia: 9.6 percent of adults 15-64 on disability. Washington D.C., 3.2 percent. It could be stigma; researchers found similar clusters of personal bankruptcies back when and theorized that, at some incidence rate, it became more socially acceptable. Could be docs and SS administrators recognizing that a coal miner in rural WV isn’t going to land a sit-down job. Could be that being jobless in a depressed regional economy is hazardous to your health.

  2. 2011 vs. 71,000 children at a cost of $40 million when the program began in 1974“…

    This pandering to the parasites is nothing but a vote buying scam using extorted tax dollars to finance it…

  3. Back in the olden days, lots of companies hired for the long term, if not for life. If you got to the point that you couldn’t do some aspect of your official duties, a younger person did it for you. Now companies are always looking to get rid of “dead wood.” A lot of these people end up on disability.

    The same situation comes up for people who don’t have “winning personalities.” In yesteryear, they could get a factory job that paid well. Now, they are unemployable.

    The cherry on top is that Affirmative Action demoralizes a lot of middle-aged white people. They can’t get a permanent job that pays more than disability combined with other government benefits, so a layoff turns into disability.

    If they would shut down immigration for 10 years, companies would try to hang on to the workers they have, because the cost of replacing them would be high. And salaries would gradually rise enough to lure some people off of benefits. Also, if there were a labor shortage, some of the people who are disabled would be hired despite having medical problems.

  4. It would also help if employers looked beyond applicant’s disabilities, visible and invisible, and truly looked at their qualifications and ability to do the job. It can be really tough for people with disabilities with the appropriate degrees to get jobs. Try talking to a couple of such individuals who have degrees and see what their experience has been like searching for jobs for which they would be appropriate. Bonus point, find out how their promotion rate has been compared to other people who wouldn’t need to draw on SSDI.

  5. This is the worst possible misaligned incentives coupled with demographic catastrophe, timed at the worst possible point in US history.

    There’s another reason why Julia’s screwed: SSDI runs out next year, 2015 at latest. Done. Gone.

    Actually not Julia (until the payments stop), but Julia’s benefactors, a.k.a. gainfully employed taxpayers.

    Incentives matter, and now the money is truly gone.

  6. It may be an unintended consequence, but it is most certainly not an unpredicted or unforeseen consequence. Do conservatives not talk about welfare dependency, especially generational welfare dependency, and it’s effects on individuals, families and society pretty much all the time?? I’m tired of having “unintended” be an get out of jail free card for bad legislators making bad law promulgated by bad bureaucrats badly.

    I read an article awhile back about social workers in Appalachia frustrated by parents who refused help for their “disabled” children because they needed the disability checks. Correctable (in the sense that they can be overcome) disorders like dyslexia went unaddressed because the kid’s disability was the family’s paycheck. In the words of that great diplomat, what difference does it make if kid never learns to read or write. SSDI is forever. Gad.

  7. We need to sell 3 things to Americans: freedom, private property and virtue but we can’t use those words anymore!

    A. leave me alone: How do you sell freedom to young people? Ask them if they like being told what to do.

    B. its my stuff: If you’re really a socialist, sell your Xbox, sell your smartphone, sell everything you don’t need & redistribute the wealth!

    C. don’t be a jerk: Raise your hand if you think it’s okay to hit people and take their stuff. If you’re not a jerk, we can leave you alone.

  8. Having grown up with many neighbors on welfare, I have seen how welfare creates dependency generation after generation. In this era where our government borrows money from China or has the Fed “electronically print” money for entitlement benefits that pay more than a job would pay, it becomes easier for people to justify their accepting money taken from taxpayers to be redistributed to them.

    • While there are many who abuse the system there are others who need the system. Personally, I hate the system with every fiber of my body. I worked 60+ hours a week for 35 years, got a Ph.D. in chemistry, but now, with my spine crushed in three places I cannot work between the pain and the medicines that are given to me. Words cannot begin to describe the shame of not working, the dependence on drugs to try and get even a semblance of a tolerable existence. I hate the system that I am forced to use, I hate those people who feel that no one deserves disability, but what I hate the most are those looking for a free ride. What makes it even more absurd is how disability pays far less than welfare and provides few perks like SS does.

  9. My mother was a 4th grade teacher in AL. It was a common scam for welfare moms to coach their kids on how to mimic the behavior that would grant them SSI disability; they called it “crazy money”. She found out about it because so many of them were then using the SSI ruling to get out of taking tests, etc.

    • SSI is not Social Security Disability. It is Supplement Security Income paid out of the general fund rather than SS trust accounts. Just saying. Not a value judgment..

  10. “But, as Burkhauser and Daly ask, is this necessarily a bad thing? Although the program may be an inefficient method of income redistribution, money is flowing to the poor and near-poor. ”

    Why would we want to give money to them in the first place? We give money to people who do things for us. If someone cannot find a way to make themselves useful, they don’t get any money. Wanna eat, gotta work. Any other arrangement turns productive people into slaves.

  11. Government policies are only one side of the equation here. The other side consists of arcane private-sector barriers to employment which were put in place for God only knows what goofy reason.

    Gone are the days of walking into a potential employer’s office, presenting a resume, aceing an interview, and walking out with a job. Instead, this is the era of “please apply on line”, where applications from highly qualified people routinely fall into electronic black holes.

    Assuming their resumes even make it through the computerized screening process, job-seekers then often face an obstacle course of background checks, employment-history checks (“Please account for any periods of unemployment”), medical examinations, and other barriers. The worst example of this is the misuse of the ubiquitous consumer credit report, which some employers will run even when hiring for positions which don’t involve handling money. Unemployment invariably hurts a person’s credit rating, which makes him or her less likely to be hired, which further injures their credit rating, and on and on in a vicious cycle which ultimately renders the person “unemployable” – and all for no logical reason.

    None of this is making the news right now, but I predict that hiring practices reform will become a major business – and political – issue within the next few years. In solving this problem, it would seem that fair-credit legislation – which restricts the use of consumer credit reports only to purposes involved in securing credit – would be a good place to start.

    • But people with rotten credit often get lots of debt-collection phone calls at work. Many of them are prone to depression, as they work 40 hours per week but can’t get their creditors off their backs.

      When I was working full time and deeply in debt, I had many days when I accomplished NOTHING at work because I was so overwhelmed by my personal problems (debt, divorce, child custody fight.) Eventually, I was laid off (along with a lot of co-workers) and ended up with a big gap in my resume that made it impossible for me to get another job in my field.

      I hate to say it, but if I were in position to hire people, I wouldn’t want to hire anybody with huge personal problems, and a rotten credit score is very often a marker for huge personal problems.

  12. We’re paying people to have babies and ensure they are “disabled”. Not much different than manufacturing beggars in Calcutta by cutting off feet. The Fagins in India disfigure children and the welfare moms in the US disable them for SSI.

    Adult disability also needs tigher controls to ensure only the truly disabled get paid with our scarce resources. A very high percentage of the public employee workforce goes on disability (some police and fire personnel with very good reason………but thousands of others are gaming the system and could easily do a clerical desk job with another department of their local government rather than going on the dole)

  13. It’s not just Julias and Julians. I have several friends who pulled the plug early before retirement (e.g. at 60) by filing for disability (bad back was the most popular) in anticipation of taking social security at age 66. This way they get money without reducing their SSI benefit by taking SSI early. Nobody said the Greedy Geezers were stupid.

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