Does disability insurance discourage employment?

Jagadeesh Gokhale writes:

Jobs lost during the recent recession caused a deluge of applications to the Social Security Disability Insurance program – more than 6 million each year in 2009 and 2010 – and threw into relief the fact that the SSDI program is structurally unsound.

The current applications surge will accelerate the exhaustion of SSDI's trust fund and will force Congress to have to choose among two unpalatable options – increase SSDI payroll taxes or reduce benefit allowance rates.

But that is not enough. If the particularly vulnerable population the SSDI is designed to serve is to be protected, while preserving incentives to work, the program has to be radically restructured.

Even in normal economic times, those with marginally physical or mental impairments apply in the hope of acquiring disabled status under SSDI. Among those already receiving SSDI benefits, the incentive to return to the work force is very poor.

Revealing one's ability to work, especially if it's in a low-paid occupation, could cause permanent loss of SSDI benefits. Strong work disincentives under SSDI result from its eligibility standard that guides benefit awards: an inability to engage in substantial gainful activity for 12 months or more.

Is this an underreported story?  What's the success rate on coming out of disability and finding a decent job?  What percent of the disabled, permanently unemployed are truly unable to engage in productive work?  I was put onto this question by a tip from Larry Katz.


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