Why Does Disability Increase During Recessions? Evidence from Medicare

Social Security Disability Insurance (DI) awards rise in recessions, especially for older adults. Using Medicare data, we investigate whether this pattern is driven by changes in health or the cost of entering DI. Higher unemployment at application corresponds to increased DI entry, lower medical spending, and lower mortality among new entrants. Leveraging age-based discontinuities in disability eligibility criteria at older ages, we find that workers induced into DI by poor economic conditions have similar spending and mortality outcomes to those induced by relaxed eligibility criteria, suggesting that changes in entry costs can fully account for cyclical DI entry.