Supporting Work: A Proposal for Modernizing the U.S. Disability Insurance System


Released: December 2010 • Discussion Paper

Related Topics: Employment & Wages, Economic Security


  • David AutorAssociate Department Head, MIT Department of Economics; Faculty Research Associate, National Bureau of Economic Research and Faculty Research Associate, NBER
  • Mark DugganProfessor of Business and Public Policy, Wharton School, University of Pennsylvania

The Social Security Disability Insurance (SSDI) program has failed to support the ongoing employment and economic self-sufficiency of workers with disabilities, leading to rapid growth in program expenditures and declining employment of Americans with disabilities. This proposal offers a blueprint for reversing this needless employment decline and stemming the dramatic growth of the SSDI program. Refocusing the SSDI program toward assisting individuals with disabilities to remain employed, and away from supporting unnecessary long-term dependency, would improve the economic security and well-being of individuals with disabilities, as well as their families, employers, and society at large. It would also slow the growth of the SSDI program and, therefore, improve the long-term solvency of the Social Security system.

A wealthy, compassionate nation should have a fair and efficient disability insurance program that protects workers and their families from poverty and loss of medical care in the event of work-limiting disability. In the United States, the Social Security Disability Insurance (SSDI) program has played this role since its inception in 1956. Currently providing disability insurance to 152 million nonelderly Americans and paying monthly disability insurance benefits to 8.1 million workers with disabilities, the program has become a crucial piece of the U.S. safety net. Without this protection, the country would be substantially worse off.

However, SSDI is ineffective in assisting workers with disabilities to reach their employment potential or maintain economic self-sufficiency. Instead, the program provides strong incentives to applicants and beneficiaries to remain permanently out of the labor force, and it provides no incentive to employers to implement cost-effective accommodations that enable employees with work limitations to remain on the job. Consequently, too many work-capable individuals involuntarily exit the labor force and apply for, and often receive, SSDI.

When Congress created SSDI in 1956, disability and employability were viewed as mutually exclusive states. As a result, the 1956 law defines disability as the “inability to engage in a substantial gainful activity in the U.S. economy” — in other words, the inability to work. The SSDI program still uses this definition, providing income support and medical benefits exclusively to workers who are out of the labor force and cannot be expected to work in the future, as determined by the Social Security Administration (SSA).

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