Disability: The Jobs Killer No One Talks About

The Social Security Disability Insurance (SSDI) program is a major factor in America’s safety net – one that is very poorly understood by the public, and also in acute need of reform.

To oversimplify, the system works by forcing workers to pay payroll taxes into a trust fund to provide benefits for those who become disabled and can't work.

Earlier this week, the Senate Budget Republicans produced a chart that more or less sums up the problems with disability insurance:

Here are the basic fiscal facts about the program: the number of workers on disability has risen sixfold over the past 40 years, rising from 1.4 million in 1970 to 8.3 million in 2011, not including the dependents of people receiving benefits. In that same time span, spending on the program grew more than nine times over. The program’s trust fund (which is separate from the Social Security retirement trust fund) is projected to run out by 2016.

Those facts are from a new Congressional Budget Office report outlining ways to cut down on the disability program’s out-of-control spending overruns. It’s been spending more than it’s been taking in since 2009, and will increasingly put fiscal pressure on Social Security retirement benefits and the rest of the federal budget from here on out. The CBO gives a few options for addressing the problem, most of which involve raising taxes or paring down benefits in one way or another.

The larger problem with disability, though, can't be addressed with simple tax hikes or benefit cuts. The system creates a number of misaligned incentives for workers and encourages abuse of the system. The chart above captures the problem in a nutshell: the program is becoming, for millions of Americans, an alternative to getting jobs.

Because the program grants benefits to those who demonstrate an inability to work, it generates a significant incentive for those applying to the program to stop looking for work, and to play up whatever marginal (and often unfalsifiable) disabilities they might have. And once they’ve cleared the application, they have an even stronger motivation not to rejoin the workforce, for fear of losing their lifetime benefits (if you’re able to hold a job, by the program’s definition, you’ve proved that you’re no longer disabled and not eligible for disability). The benefits aren’t luxurious by any means, but they offer guaranteed income and health care aid – which can't be said for a job prospect.

So not only is the disability program draining the budget, its poor design is also adding, significantly, to our employment woes.

The CBO report does include a few suggestions for counteracting the program’s disincentives to work. It suggests creating a category of “partial disability” to allow beneficiaries to work without losing all their benefits. Another option would be to make employers share some of the costs of disability benefits, thereby giving them a motivation to accommodate workers who might otherwise be let go. The top expert on this issue is MIT economist David Autor, who’s offered his own strategies for reforming the program so that workers don’t face steep penalties for leaving disability.

Whatever the best way to get there, disability reform is an urgent need for both the budget and the long-term jobs situation.