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The Impact of Unemployment Insurance Extensions on Disability Insurance Application and Allowance Rates

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Publication Date: October 2011

Publisher(s): Center for Retirement Research at Boston College

Series: WP2011-17

Special Collection:

Topic: Labor (Work and labor)

Keywords: unemployment insurance; disability benefits; extension; social security

Type: Report

Coverage: United States

Abstract:

Both unemployment insurance (UI) extensions and the availability of disability benefits have disincentive effects on job search. But UI extensions can reduce the efficiency cost of disability benefits if UI recipients delay disability application until they exhaust their unemployment benefits. This paper, the first to focus on the effect of UI extensions on disability applications, investigates whether UI eligibility, extension, and exhaustion affect the timing of disability applications and the composition of the applicant pool. Jobless individuals are significantly less likely to apply to Social Security Disability Insurance (SSDI) during UI extensions, and significantly more likely to apply when UI is ultimately exhausted. Healthier potential applicants appear more likely to delay, as state allowance rates increase after a new UI extension. Though simulations find that extensions do not decrease SSDI costs, the benefits of UI extensions still may be understated — permanent disability benefits are diverted to shorter-run unemployment benefits and, potentially, new jobs, while easing the burden on the nearly insolvent SSDI Trust Fund.