Macroeconomic Influences on Social Security Disability Insurance Application Rates

Dana A. Kerr and Bert J. Smoluk

Journal of Insurance Issues, 2011, vol. 34, issue 2, 112-150

Abstract: It is generally accepted that Social Security Disability Insurance (DI) Program application rates are influenced by the macro economy. DI program data and previous research indicate that a disproportionate number of beneficiaries (past applicants) are less-educated, with low-skill employment histories. These applicants, while they worked, were likely to intertemporally shift their durables consumption expenditures in response to tight budget constraints over the business cycle. Many endured a decline in their wages relative to the average U.S. worker. A strategy for linking DI application rates to the economy, therefore, is one that focuses on durables consumption shifts and wage inequality. Consistent with our expectations, we find that aggregate DI application rates are inversely related to various durables consumption-to wealth ratios and measures of wage inequality felt by less-educated/low-skilled workers. An interesting finding of this paper is that the national unemployment rate is not always a reliable predictor of DI application rates.

Date: 2011
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