The Impact of the Great Recession on SSDI Awards A Birth-Cohort - - PowerPoint PPT Presentation

The Impact of the Great Recession on SSDI Awards

A Birth-Cohort Analysis

21st Annual SSA Research Consortium Meeting August 1, 2019

Michael Anderson, Mathematica Yonatan Ben-Shalom, Mathematica David Stapleton, Center for Retirement Research at Boston College Emily Roessel, Social Security Administration

Center for Studying Disability Policy

Center for Studying Disability Policy

This research was supported by a grant from the U.S. Social Security Administration (SSA) as part of the Disability Research Consortium. The findings and conclusions are solely those of the authors and do not represent the views of SSA, any agency of the federal government, Mathematica, or the Center for Retirement Research at Boston College.

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SSDI awards began to decline in 2011

Social Security Disability Insurance (SSDI) awards and recessions, 1965 to 2018

3 200 400 600 800 1000 1200 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

SSDI awards (1,000s)

Great Recession Recession Awards (1,000s)

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Forecasting is difficult when awards fluctuate

SSDI awards and projected date of SSDI Trust Fund depletion

4 2026 2016 2023 2028 2032 2052 2010 2020 2030 2040 2050 2060 200 400 600 800 1000 1200 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Projected year of Trust Fund depletion SSDI awards (1,000s) Calendar year / report year

Great Recession Awards (1,000s) Projection for DI Trust Fund depletion

Passage of Bipartisan Budget Act of 2015

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The dynamic effect of recessions on awards

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The recession ended in 2009 The lag in the impact of the recession depends on the worker's path from layoff to award:

• Apply immediately after layoff
• Exhaust Unemployment Insurance before application (maximum duration extended in this period)
• Search for work before application
• Onset of disability follows job loss

Maestas et al. (2018): recession induced 400,000 SSDI awards between 2008 and 2012 In the recovery period:

• Reductions in layoffs reduce awards to those newly laid off
• More unemployed workers at risk for SSDI are able to find jobs

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Did the Great Recession lead to a reduction in awards after 2010?

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Acceleration hypothesis:

• The recession accelerated awards to some workers who would have applied and been awarded

benefits later in the period had the recession not occurred

• Acceleration of awards contributed to both the initial increase and the later decline

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Empirical strategy

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Analyze individual birth-year cohorts:

• Construct counterfactual: expected awards if no recession
• Measure the deviation between observed awards and the counterfactual
• Predict deviation using cross-state variation in the business cycle

Novelties

• Birth-cohort method: needed to test the acceleration hypothesis; avoids confounding of

changes in age/sex composition of labor force

• Business-cycle measure: employment ratio not sensitive to “discouraged worker” effect

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Counterfactual awards

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Counterfactual: estimate of awards in 2008 to 2014 if no recession Data: 2016 Disability Analysis File SSDI awards in 1996–2014 Beneficiaries age 20 to 65 in 2007 Example: projected award growth for a 55-year-old female in Ohio is based on: Ohio females born in: Award growth at age 55 from: 1942 1996 to 1997 1943 1997 to 1998 … … 1951 2005 to 2006 Use the counterfactual growth rates to construct counterfactual awards in 2008 through 2014

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For males, the early increase is offset by a later decrease

9 50,000 100,000 150,000 200,000 250,000 300,000 2008 2009 2010 2011 2012 2013 2014

Awards

Observed awards Counterfactual awards

Note: figure shows males born from 1941 to 1986.

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For females, the counterfactual is too steep

10 50,000 100,000 150,000 200,000 250,000 300,000 2008 2009 2010 2011 2012 2013 2014

Awards

Observed awards Counterfactual awards

Note: figure shows females born from 1941 to 1986.

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Three variables to characterize the business cycle

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Source: Local Area Unemployment Statistics.

• 1. Sept. 2007

employment rate

• 2. Decline from
• Sept. 2007 to Dec.

2009

• 3. Recovery from
• Dec. 2009 to Dec.

2016

0.55 0.56 0.57 0.58 0.59 0.6 0.61 0.62 0.63 0.64 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Employment rate

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Cross state regression models

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Estimate models by birth-year and sex in 6-month periods from 2008 through 2014 Dependent variable: deviation of observed awards from counterfactual Explanatory variables: the business cycle variables and an intercept Business cycle component: awards predicted by the business cycle variables

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The business cycle predicts a decline in awards starting in 2012

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Note: Figure shows awards predicted by the business cycle for males born in 1941 through 1986.

• 100,000
• 80,000
• 60,000
• 40,000
• 20,000

20,000 40,000 60,000 80,000 100,000 2008 2009 2010 2011 2012 2013 2014

Awards

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Results are driven by males age 49 to 59 in 2008

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Note: Figure shows males born in 1941 through 1986, by cohort group.

• 80,000
• 60,000
• 40,000
• 20,000

20,000 40,000 60,000 2008 2009 2010 2011 2012 2013 2014

Awards

1941-1948 1949-1959 1960-1969 1970-1979 1980-1986

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Conclusions

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Acceleration is most evident for men who were age 49 to 59 at the beginning of the recession A large share of the decline in awards since 2011 is due to the Great Recession This effect is temporary The contribution of other factors, including long-term factors, is smaller than we would

• therwise think

Implications for projections of the SSDI Trust Fund depletion:

• Current projections may be too optimistic
• Previous projections too dire

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Future work

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Address issue with counterfactual for females Characterization of the business cycle: Sex-specific employment rates Time-varying

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Thank you

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Please address questions to Mike Anderson: mtanderson@mathematica-mpr.com