The Financial Repercussions of New Work-Limiting Health Conditions for Older Workers

By Schimmel, Jody; Stapleton, David C. | Inquiry, Summer 2012 | Go to article overview

The Financial Repercussions of New Work-Limiting Health Conditions for Older Workers


Schimmel, Jody, Stapleton, David C., Inquiry


This analysis used propensity score matching to construct a comparison sample that is observationally similar at baseline interview to older workers who later experience the onset of a medical condition that limits their ability to work. Using these matched onset and comparison samples, we studied trajectories in earnings and income around onset of the work limitation. Earnings two years after onset for the work-limitation group were 50% lower and poverty rates were nearly double. Income from unemployment insurance, workers' compensation, and retirement and disability benefits offset only a small amount of the earnings declines, resulting in decreased overall household income after onset of the work-limiting condition.

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The employment rate of people with disabilities has been steadily declining since the mid-1980s, both in absolute and relative terms compared to the employment rate of their peers without disabilities (Stapleton et al. 2009; Weathers and Wittenburg 2009). At the same time, workers with disabilities have experienced a relative decline in their household incomes (Burkhauser, Rovba, and Weathers 2009), a steady increase in the percentage with incomes below the poverty line (Burkhauser, Houtenville, and Rovba 2009), and a steady growth in the share receiving Social Security Disability Insurance (SSDI) benefits (Stapleton and Wittenburg 2011). Federal expenditures to support this population have grown at a rate that substantially exceeds the growth rate of all federal outlays (Livermore, Stapleton, and O'Toole 2011).

The self-report of a medical condition that limits one's ability to work (hereafter a "work limitation") often serves as a proxy for disability when using self-reports in survey data, although it is imperfect. (1) The likelihood of experiencing such a limitation increases significantly as individuals near retirement age. Indeed, 25% of workers ages 51 to 55 in 1992 experienced the onset of such a work limitation by their 62nd birthday (Johnson, Mermin, and Murphy 2007). The onset of medical conditions limiting work ability can have a large and lasting impact on earnings at any age, but may be particularly problematic for older workers. It may be especially hard for them to find a job to fit their remaining skills and abilities, or to find an employer that will invest substantially in their training. Workers in such a situation might decide to leave the labor force and apply for SSDI or to claim early Social Security retirement (SSR) benefits at age 62 (Bound et al. 1999; Leonesio 2003; Bound and Waidmann 2010; Johnson, Favreault, and Mommaerts 2010). The years prior to retirement are some of the highest earning years for many workers, and the last opportunity to save for retirement. The onset of a work limitation potentially subjects households to large losses in income and wealth accumulation.

Public programs such as SSDI and Supplemental Security Income (SSI) are designed to offset some of the earnings loss experienced if workers leave the labor force because of a medical condition. But not all such workers are eligible for disability benefits, and even for workers who are, there is usually a significant delay from the date of onset to program eligibility. Moreover, when such benefits are received, on average they replace only a small share of the reduction in earnings (Stapleton et al. 2008). A worker who experiences a work limitation can qualify for SSR as early as age 62, but claiming early results in an actuarially fair downward adjustment in benefits for the remainder of one's life. Households can try to offset earnings losses in other ways: a worker may be able to claim unemployment insurance or workers' compensation; the worker's spouse might increase earnings; or the worker might draw on pension plans or other household assets. However, as Stapleton et al. (2009) show, these offsetting income changes typically fall far short of the earnings reductions that follow the onset of a work limitation. …

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