CEPR

October 21, 2015


Contact: Alan Barber, 202-293-5380x115

WASHINGTON DC - Over the last quarter century, the number of workers receiving Social Security Disability Insurance (DI) in the United States has gone from 25 per thousand in 1990 to 59 per thousand in 2014, bringing the DI trust fund close to depletion. While most of this rise is due to demographic factors, like an aging workforce, many have attributed the increase to a decreased willingness to work. As a recent letter from members of Congress to Secretary of Labor Thomas Perez states, part of this increase is likely due to changes in state workers' compensation laws that shift costs and coverage to public programs like DI. A new report from the Center for Economic and Policy Research (CEPR) presents strong corresponding evidence that this is indeed the case.

The report, “Rising Disability Payments: Are Cuts to Workers’ Compensation Part of the Story,” examines the relationship between workers' compensation benefits and the number of workers receiving DI benefits.

“Most of the rise in people receiving DI benefits is explained by demographics, such as the aging of the workforce, rather than people trying to avoid work,” said Dean Baker, an author of the report and Co-Director of CEPR. “It seems an overlooked factor, though, has been a drop in the number of people getting workers' compensation. As a result of tighter state eligibility requirements, workers who might have otherwise been getting workers' compensation for work-related injuries are now turning to disability insurance.”

Baker -- along with co-author Nick Buffie, a research assistant at CEPR -- notes that the rise in the number women entering the workforce and the increase in the retirement age to receive Social Security benefits have also contributed to growth of the number of DI beneficiaries. Health insurance coverage and the weakness of the labor market both during and after the Great Recession played a role in the increase as well. The reduced mortality rates of those workers getting DI benefits is also an important factor in the increase. While these items have been examined for their role in the increase in DI benefits, one topic that has been overlooked is the link between workers' compensation and DI.

Using data from the National Council on Compensation Insurance (NCCI), the National Academy of Social Insurance (NASI) and the Social Security Administration (SSA), Baker and Buffie explore the relationship between WC and DI. In the course of the report, the authors examine the correlation at the national and state level between the percent changes in WC benefits and new DI awards and the correlation between the change in the number of WC and DI beneficiaries with changes in state WC legislation.

The authors find:

• In a variety of specifications there is a strong relationship between the decline in state level WC beneficiaries and rise in new DI awards. This suggests that people are turning to DI because they are less able to collect WC benefits.

• A test of whether the rise in DI awards by state can be explained directly by policy changes to the state WC program found some evidence of a direct relationship. Given the difficulties in capturing the policy changes in the relevant variable, this is strongly suggestive that the rise in DI benefits was in part the result of state-level policy decisions to make the WC program less generous.

• These estimates suggest that more than one-fifth of the rise in the percentage of workers receiving DI awards can be explained by cuts to the WC program.

This report represents the initial examination of the relationships between the WC and DI programs. While these results are preliminary, the analysis strongly suggests that cuts in WC have led to increases in the number of people receiving DI.