The Rise in Disability Rolls and the Decline in Unemployment

Between 1984 and 2001, the share of nonelderly adults receiving Social Security Disability Insurance income (DI) rose by 60 percent to 5.3 million bene-ciaries. Rapid program growth despite improving aggregate health appears to be explained by reduced screening stringency, declining demand for less skilled workers, and an unforeseen increase in the earnings replacement rate. We esti-mate that the sum of these forces doubled the labor force exit propensity of displaced high school dropouts after 1984, lowering measured U. S. unemploy-ment by one-half a percentage point. Steady state calculations augur a further 40 percent increase in the rate of DI receipt. The federal Disability Insurance (DI) program is the largest income replacement program in the United States directed to-ward nonelderly adults, with annual cash transfers exceeding $54 billion in 2001. Once benets are awarded, recipients receive income replacement and health insurance through Medicare until return to work, medical recovery, death, or retirement a