NBER Disability Research Center

NB13-1, Understanding the Increase in Disability Insurance Spending

Jeffrey Liebman, Harvard University and NBER

Federal spending on disability insurance benefits through the SSDI and SSI programs increased from 0.65 percent of GDP in 1984 to 1.20 percent of GDP in 2010. Some experts describe the increase in disability rolls as “unbelievable” (Murray, 2012), “skyrocketing” (Duggan and Imberman, 2009), “unsustainable” (Burkhauser, 2011), and as leading to “a fiscal crisis unfolding” (Autor and Duggan, 2006). Others see the spending increase as “modest” and program finances as “sustainable” (Reno, 2011). This project seeks to identify the share of the increase in spending attributable to each of three categories of factors: demographic changes such as population aging and the increase in female labor force participation; policy changes such as the 1984 Disability Benefits Reform Act, the increase in the OASI full benefits age, and the 1996 welfare reform; and labor market developments, such as stagnating wages for workers with low levels of education. The goal is to determine whether the 30-year trend of rising spending on disability benefits is likely to continue or, alternatively, whether disability insurance spending is likely to stabilize, now that the baby boomers are converting from disability benefits to retirement benefits and policy changes such as the 1984 reforms have had decades to fully work through the system.