Over at Forbes, Neil Howe has published a very interesting piece about the rise in the number of people in the USA on disability insurance (DI). It points to a number of factors including the cultural perception of work, the messy interplay between state and federal systems and of course our old favourite – an ageing population.

DI benefits are available to those who are disabled and cannot perform the activities required of their job, cannot adjust to another type of job due to their condition and their disability will last at least a year or will result in death. Those who are eligible for DI receive a monthly DI cheque until they reach retirement age, die or recover. The benefit that they receive reflects their previous earnings. Over the last few decades the number of working age people claiming DI benefits has doubled from 2.3 percent in 1980 to 4.7 percent in 2011. By 2013, the number of workers claiming DI was about 9 million and the fund of $150 billion that DI benefits are drawn from is set to run out in 2016. So why has there been this growth in the number of workers claiming DI benefits?

Howe notes various factors including:

“Increased women’s workforce participation, which has made more women eligible for DI benefits, explains as much as 29.1% of the doubling of the DI rate since 1980. Next, the aging of workers into older, health-vulnerable age brackets accounts for 17.9% of the rate increase. Finally, the raising of the Social Security retirement age from 65 to 66 explains an additional 9.1% of the rate increase.”

However, he also notes that these only explanations only account for less than 60 percent of the increase. There must be other reasons as well. Howe lists the following potential explanations:

  • for low-skilled workers, DI has become a “de facto welfare” program. Since it is adjusted to the average wage, DI is seen as more attractive when hourly pay rates go down.

  • The increasingly legalistic nature of the DI system with a new “brand of disability law” has seen people turn to lawyers to beat the system.

  • States are pushing people off state-funded welfare schemes and onto federal-funded DI. Howe cites the blatant scheme in the state of Missouri whereby Public Consulting Group is paid $2300 for every person they transfer off state welfare and onto disability.

  • The definition of what constitutes a “disability” has been significantly widened over time. In 1961, the largest share of DI beneficiaries were those suffering from life-threatening illnesses like heart disease (over 25 percent). By 2011 more subjective illnesses like musculoskeletal problems (33.8 percent) and mental illness (19.2 percent) are the largest groupings of DI beneficiaries. Further, diagnostic tools are more advanced now than they were in previous decades.

  • Finally, Howe notes that the stigma attached to a person’s (particularly a man’s) inability to work has dramatically declined. Since the 1960s, labour force participation amonst working-age men has dropped steadily. Increasing numbers of women entering the workforce have weakened the norm of the man as the breadwinner of the family. Now, many fathers in my generation are quite willing to admit that they would prefer to cut back work hours to spend more time with the kids.

So is there any hope for the financial side of the DI scheme? What will happen when the fund runs out next year? Howe suggests that the burden must be relaxed on the expanded DI scheme and points to the example of the Netherlands where “officials have reduced the number of disability beneficiaries by 60% in the past six years by requiring back-to-work plans and lowering taxes for employers who can keep disabled workers on the job”. And surely schemes that help disabled workers back into employment if possible are to be applauded both for the workers sake and for the wider economy’s sake.  

Marcus Roberts is a Senior Researcher at the Maxim Institute in Auckland, New Zealand, and was co-editor of the former MercatorNet blog, Demography is Destiny. Marcus has a background in the law, both...