Unemployment"
BY: DAVID H. AUTOR
Massachusetts Institute of Technology (MIT)
Department of Economics
National Bureau of Economic Research (NBER)
MARK DUGGAN
University of Chicago
Department of Economics
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=271732
Paper ID: MIT Dept. of Economics Working Paper No. 01-15
Date: May 2001
Contact: DAVID H. AUTOR
Email: Mailto:dautor at mit.edu
Postal: Massachusetts Institute of Technology (MIT)
Department of Economics
Room E52-371
50 Memorial Drive
Cambridge, MA 02142 USA
Phone: 617-258-7698
Fax: 617-253-1330
Co-Auth: MARK DUGGAN
Email: Mailto:mduggan at midway.uchicago.edu
Postal: University of Chicago
Department of Economics
1126 East 59th Street
Chicago, IL 60637 USA
ABSTRACT:
Between 1984 and 2000, the share of non-elderly adults receiving
benefits from the Social Security Disability Insurance (DI) and
Supplemental Security Income (SSI) programs rose from 3.1 to 5.3
percent. We trace this growth to reduced screening stringency
and, due to the interaction between growing wage inequality and
a progressive benefits formula, a rising earnings replacement
rate. We explore the implications of these changes for the level
of labor force participation among the less skilled and their
employment responses to adverse employment shocks. Following
program liberalization in 1984, DI application and recipiency
rates became two to three times as responsive to plausibly
exogenous labor demand shocks. Contemporaneously, male and
female high school dropouts became increasingly likely to exit
the labor force rather than enter unemployment in the event of
an adverse shock. The liberalization of the disability program
appears to explain both facts. Accounting for the role of
disability in inducing labor force exit among the low-skilled
unemployed, we calculate that the U.S. unemployment rate would
be two-thirds of a percentage point higher at present were it
not for the liberalized disability system.
Keywords: disability, social security, unemployment,
inequality, low skilled workers
JEL Classification: H53, I12, J68