Retirement and Economic Behavior

By Henry J. Aaron; Gary Burtless | Go to book overview

Robert H. Haveman, Barbara L. Wolfe, and Jennifer L. Warlick


Disability Transfers, Early Retirement, and Retrenchment

From 1968 to 1978, the social security disability insurance (SSDI) program experienced dramatic growth in caseload and costs. Expenditures grew from about $2 billion to nearly $13 billion, an average annual growth rate of nearly 20 percent. Over the same period the number of beneficiaries grew at an average annual rate of over 8 percent. Because of this growth a large portion of both the rapid decline in the labor force participation rate of older males and the financial problems of social security have been attributed to SSDI. Some analysts expect substantial benefits if the burden of SSDI can be reduced.1

Consider the relationship between SSDI growth and patterns of early retirement. From 1959 to 1980 the labor force participation rate of males aged 45-59 fell from 96 percent to 88.5 percent. On the basis of empirical analysis using data from the National Longitudinal Survey, Parsons asserts that the increased generosity of SSDI benefits is primarily

____________________
*
The authors gratefully acknowledge helpful comments by Dennis Aigner, Gary Chamberlain, Sheldon Danziger, Arthur Goldberger, Robert A. Moffitt, and Jacques van der Gaag. The first part of this paper is based on Robert H. Haveman and Barbara L. Wolfe , "Disability Transfers and Early Retirement: A Causal Relationship?" Journal of Public Economics (forthcoming).
1
.In fact, growth in SSDI recipients has moderated substantially since 1978. The number of people receiving SSDI benefits has fallen by more than 400,000 in the past three years. See Mordechai E. Lando, Alice V. Farley, and Mary A. Brown, "Recent Trends in the Social Security Disability Insurance Program," Social Security Bulletin, vol. 45 ( August 1982), pp. 3-14. A controversial government crackdown against alleged abuse in the SSDI program has contributed to this retarded growth. In 1982 alone, 180,000 people were removed from the rolls on the grounds that they were ineligible to receive benefits. Despite these recent trends in enrollments, the cost of the SSDI program has continued to rise rapidly. An expanding earnings base and the indexing of benefits to the CPI are the primary sources of increased costs.

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