Over the course of the Great Recession, federal unemployment benefits have ranged in duration from 50 to 99 months, depending on factors like which state the recipient lives in and that region’s unemployment rate. In December 2013, Congress let the most recent round of federal Emergency Unemployment Compensation (EUC) expire, but the following spring the Senate moved to renew it; as of this writing, the extension awaits action by the House.
When Congress failed to act that December, some policy analysts warned that applications for Social Security Disability Insurance (SSDI) would jump; they predicted that the unemployed who had maxed out their unemployment insurance (UI) would seek other sources of relief, straining a component of the Social Security system that many estimate could exhaust its funds as soon as 2016. These fears are founded in the fact that SSDI rolls have grown in the aftermath of all recent recessions, beginning in the early 1990s.
But if it were the case that the long-term unemployed turn to SSDI, it’s possible that extending UI could be less costly than not extending it. The per person cost of SSDI is about $300,000, because most people who go on SSDI do so until retirement age, receiving benefits over the course of many years or even decades. In contrast, the per person cost of UI is about $300 weekly on average ($15,600 annually), and since UI is meant only as a temporary stopgap, the per person benefit is much lower than it is for SSDI. “So if there were a mass trend of long-term unemployed who would prefer to look for work but whose benefits run out, it might be less costly to simply extend those weekly benefits, assuming they’d eventually find a job,” says Professor Andreas Mueller, who specializes in unemployment insurance policy.
Mueller calculates that unemployment extensions pay for the cost of long-term disability if 12 percent or more of the long-term unemployed whose unemployment benefits run out apply for disability benefits. He worked with Jesse Rothstein of the University of California, Berkeley and Till von Wachter of the University of California, Los Angeles to learn if and how the expiration of UI (unemployment insurance) affects SSDI behavior and awards.
This research builds on past examinations of data that found correlations between unemployment insurance benefit expirations and new applications for SSDI. But Mueller and co-researchers used a more extensive data set and analysis, including data for SSDI awards (not all applicants are actually awarded SSDI), and come to different conclusions. Using data from the Social Security Administration, including state-level data and some non-public data, the researchers conducted a three-part analysis: first they looked at the number of people who exhausted unemployment benefits in a given month; second, they reviewed how many people applied for disability insurance in a given month; and third, they looked at the relationship between the two data series both in national and state-by-state data. They found no overall correlation between the number of unemployment benefit exhaustions and increases in filings or awards for SSDI. They also did an event analysis. “If this move to SSDI were really happening, we would expect to see a drop in SSDI application rates whenever unemployment benefits were extended—but we found very little correlation,” says Mueller.
While their findings show that there is no stampede of former UI recipients to SSDI, Mueller notes that they can’t rule out that there might be a small uptick in SSDI applications that their analysis did not pick up. “But it could not be on a scale that would create a notable drain on SSDI, and it falls far from the 12 percent threshold,” Mueller says. “There may be other benefits to extending UI; relieving stress on SSDI does not appear to be one.”
Andreas Mueller is assistant professor of finance and economics at Columbia Business School.
Professor Mueller joined the Columbia Business School in 2011. He received a Ph.D. from the IIES, Stockholm University, and was awarded the Arnbergska Prize for his dissertation work by the Royal Swedish Academy of Sciences. His research spans a broad spectrum of issues in macroeconomics, labor economics and monetary economics. A central focus of his research is the labor market and, more specifically, the...
Read the Research
Andreas Mueller, Jesse Rothstein, Till von Wachter
"Unemployment Insurance and Disability Insurance in the Great Recession"