We investigate the determinants of application for Social Security Disability Insurance (DI) benefits in approximately 45 jurisdictions between 1981 and 1999. We reproduce findings of previous studies of the determinants of DI application then test the additional influence of changes to workers' compensation program benefits and rules on DI application rates. Our findings indicate that the programs are interrelated: When workers' compensation benefits declined and eligibility rules tightened in the 1990s, the DI application rate increased.
Social Security Disability Insurance (DI) is the largest income-replacement program for nonelderly Americans. The federal DI and Medicare programs provide cash benefits and health care coverage to disabled beneficiaries until they return to work, die, or qualify for Social Security old-age benefits. The number of DI beneficiaries dramatically increased in the late 1980s and 1990s, which drew considerable attention from policymakers and academics. As Chart 1 shows, only about 2.3 percent of adults aged 25-64 were DI recipients in the 1980s, but the figure grew to 3.5 percent by 1999.
Studies investigating the rise of DI enrollment primarily focus on the incentives to apply. The factors that produce these incentives fall into three categories: (1) the supply of DI benefits, (2) the demand for DI benefits, and (3) the effects of alternative income replacement programs. DI supply is determined by program rules, including the stringency of the eligibility criteria and the generosity of benefits. The demand for DI benefits is largely determined by individuals' characteristics, including health status and financial needs. Alternative programs that also pay cash benefits or cover medical costs for disabled persons (or did so during the 1980s and 1990s) include Supplemental Security Income (SSI), Aid to Families with Dependent Children (AFDC), Temporary Assistance for Needy Families (TANF), and Medicaid.
Autor and Duggan (2003) claim that liberalizing the application screening process has been a major cause of the growth in DI application since the early 1980s. Chart 2 shows that the application rate-measured as DI applicants per 100,000 workers-was generally higher in the 1990s than in the 1980s. According to Duggan and Autor (2006), the Social Security Disability Benefits Reform Act of 1984 significantly altered the DI eligibility criteria because it allowed relatively subjective evidence based on an applicant's reported pain and discomfort in lieu of strictly objective medical evidence. In addition, the Social Security Administration (SSA) was directed to relax its strict screening criteria for mental illness and to consider multiple nonsevere ailments in establishing eligibility. Mashaw and Reno (1996b) argued that the "liberalization" of the eligibility criteria in the 1984 legislation remedied overly zealous administrative retrenchment during 1979-1983. Moreover, they found that, despite the growth in DI enrollment in the 1990s, the DI allowance rate (after controlling for changes in the workforce's age and sex distributions) did not return to the peak reached in 1975. The authors concluded that disabled individuals had less access to DI benefits in the 1990s than in the 1970s. Chart 2 shows that the DI acceptance ratio-the number of benefit allowances divided by the number of denials-generally increased from 1981 to 1992, then dropped until the mid-1990s, before rising again after 1995.
Individuals with disabilities are more likely to seek assistance from social insurance programs in an economic downturn than they are in a robust economy. Most empirical studies support this prediction (Autor and Duggan 2003; Kreider 1999; Rupp and Stapleton 1995). The unemployment rate is usually positively correlated with DI application. Soss and Keiser (2006) provide evidence that a state's disability prevalence rate is a factor in DI application rates. …