How Does the Composition of Disability Insurance Applicants Change Across Business Cycles?

Boston College Center for Retirement Research Working Paper No. 2013-5

Posted: 23 Feb 2013 Last revised: 26 Aug 2013

See all articles by Norma Coe

Norma Coe

University of Pennsylvania - Perelman School of Medicine

Matthew S. Rutledge

Boston College, Center for Retirement Research

Date Written: February 1, 2013

Abstract

Much as in previous recessions, the number of applications to public disability insurance programs increased sharply during the Great Recession. We find that the composition of applicants also changes across business cycles. For example, applicants during economic downturns, and especially during the Great Recession, are younger, better educated, higher income, and more likely to have recent work experience. However, we find only mixed evidence supporting the theory that the increase in applications in downturns is caused by healthier applicants who apply to disability programs only because they are unemployed.

We formally decompose how the differences among the applicants across the business cycle – both from peak to trough and from trough to trough – contribute to the increased probability of applying for, and being awarded, benefits. We find that changing demographics and unemployment rates explain less than half of the increase in the application rate and only one quarter of the increase in the awards to applicants (the allowance rate) between the 2004-2006 expansion and the Great Recession. Further, these same factors predict a fall in the award rate (among eligible individuals), in contrast to the increase observed in the data. Together with the fact that there have been no programmatic changes in the disability programs in the 2000s, these results suggest there have been fundamental changes over the last decade in the way that people apply to disability and in the way these applications are evaluated that cannot be explained by observable differences.

Suggested Citation

Coe, Norma and Rutledge, Matthew S., How Does the Composition of Disability Insurance Applicants Change Across Business Cycles? (February 1, 2013). Boston College Center for Retirement Research Working Paper No. 2013-5, Available at SSRN: https://ssrn.com/abstract=2222768 or http://dx.doi.org/10.2139/ssrn.2222768

Norma Coe (Contact Author)

University of Pennsylvania - Perelman School of Medicine ( email )

423 Guardian Drive
Philadelphia, PA 19104
United States

Matthew S. Rutledge

Boston College, Center for Retirement Research ( email )

Boston, MA
United States

HOME PAGE: http://crr.bc.edu/researchers/matthew_s_rutledge.html

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