FRBSF Economic Letter
2000-28; September 22, 2000
 Economic
Letter Index
Recent Declines in Work and Income among Men with Disabilities
It is by now conventional wisdom that the economic expansion during the
1990s was both broad and deep, reaching Americans of all races, ethnicities,
and income levels. However, this Economic Letter summarizes recent
research by Burkhauser, Daly, and Houtenville (forthcoming and 2000, hereafter
BDH) which shows that for the nearly 10% of the working-age population
with disabilities, strong economic growth during the 1990s did not produce
higher rates of employment or rapid income gains. BDH find that following
seven years of economic expansion (1992-1998) the probability of employment
among working-age individuals with disabilities had decreased, the share
of their household income coming from their earnings had fallen while
the share from disability transfers had risen, and their average household
size-adjusted income remained below 1989 business cycle peak levels. Looking
beyond the experiences of the average individual with a disability, BDH
find that the most significant declines in household size-adjusted income
occurred for men and women with disabilities in the middle of the income
distribution, where large reductions in labor earnings were only partially
offset by increases in disability transfer income.
Data sources and measurement issues
Studies of the population with disabilities frequently are constrained
by the availability of data. National surveys that contain detailed questions
regarding health and disability typically have limited information about
household composition, employment, and income, or cover only a few years
and thus do not allow for comparisons over time. Furthermore, national
surveys with multi-year data and detailed questions on economic status
generally do not include comprehensive questions about disability.
To examine how the employment and income of people with disabilities
changed over the business cycle, BDH use data from the annual March Current
Population Survey (CPS). The March CPS is a yearly survey of a nationally
representative sample of more than 50,000 U.S. households containing detailed
questions about employment and sources of income. Since 1981, the March
CPS also has included a question regarding work-disability, defined as
a health problem or disability that limits the kind or amount of work
that can be performed.
Using responses to this question, BDH define the population with disabilities
and track changes in their employment and income between 1980 and 1998.
Recognizing that these variables fluctuate with the business cycle, BDH
focus on three years representing peak or near peak points: 1980, 1989,
and 1998. As they note, an ideal analysis would make peak to peak comparisons
(1979, 1989, and the next business cycle peak). However, data constraints
limit the choice of years compared to 1980 (the first year of data with
disability information), 1989 (peak of the 1980s business cycle), and
1998 (the latest year of data available). BDH focus on the experiences
of civilian working-age men and women aged 25 to 61. This limited age
range avoids confusing reductions in work or income due to disability
with similar reductions due to retirement at older ages or initial transitions
in and out of the labor force related to job shopping at younger ages.
Finally, since the March CPS data include a different sample of households
and individuals in each year, BDH are not able to follow changes in the
employment and income of the same individuals; rather, they report on
how these variables have changed for different but representative samples
of the population with and without disabilities in each year. Although
BDH examine the experiences of both men and women, this Letter summarizes
the findings for men.
Variable definitions. Although BDH examine a large number of
variables, this Letter focuses on four: employment, labor earnings,
public disability transfers, and household income. BDH classify individuals
as employed if they work at least 52 hours annually. Annual labor earnings
are defined as the sum of income from all market sources including primary
and secondary jobs and bonus income. Public disability transfers include
income from Social Security Disability Insurance, Supplemental Security
Income, Veterans' Disability Benefits, and Workers' Compensation. Finally,
BDH define household income as the sum of all income received by individuals
living in a single residence. This is annual pre-tax, post-transfer income.
To account for the fact that $20,000 a year provides a higher standard
of living for a single-person household than it does for individuals in
larger households, they adjust household income by an equivalence factor
that accounts for economies of scale within the household. All earnings
and incomes are valued in 1998 dollars using the Consumer Price Index
for urban areas--CPI-UXI.
Employment patterns, 1980-1998
Figure 1 shows
the sensitivity of employment rates to the business cycle (gray bars represent
recessionary periods, NBER dating). During the 1980s the employment of
men with and without disabilities was pro-cyclical, falling with recession
and rising with recovery. In 1980, the first year the economy began to
slow, the employment of those with and without disabilities was relatively
high. Employment for men both with and without disabilities declined as
the economy moved through recession, but rose during the next six years.
In the 1990s, the employment experiences of men with and without disabilities
began to diverge. For men without disabilities, the familiar pro-cyclical
pattern continued: employment fell as the economy moved into recession
in the early 1990s but rebounded over the next seven years of economic
growth (1992-1998). By 1998, the last year of available CPS data, the
employment of men without disabilities was near its 1989 level.
In contrast, the employment pattern of men with disabilities was quite
different. Their employment fell as the economy moved into recession,
but then continued to fall during the expansion, when job growth was substantial
and the employment of men without disabilities was rising. By 1998 the
employment rate of working-age men with disabilities had not only failed
to return to its 1989 level but also was substantially below its 1992
trough year level.
Sources of household income
Changes in the employment patterns of working-age men with disabilities
between the 1980s and 1990s greatly affected the composition of their
household income. Why this is so can be seen in Figure
2. The left side of Figure 2 shows the share of mean household income
for men with disabilities coming from their own labor earnings and own
disability-related transfer income in 1980, 1989, and 1998. As the figure
shows, in 1980 labor earnings accounted for about 20% of mean total household
income for men with disabilities. Employment of men with disabilities
fell during the early part of the 1980s but rebounded over the growth
years of the 1980s resulting in only a slight decrease in the share of
mean total household income their employment provided in 1989. However,
by 1998, the labor earnings of men with disabilities accounted for less
than 15% of their mean household income, well below the 1989 level.
The next bars in Figure 2 show the share of mean household income of
men with disabilities coming from disability-related transfer benefits
in each of the three comparison years. In 1980, disability transfer income
accounted for about 19% of mean household income for men with disabilities.
The percentage increased only slightly between 1980 and 1989. However,
in 1998 the percentage rose more than 25%. Unlike the 1980s, during the
1990s the population of men with disabilities experienced both dramatic
drops in employment and earnings and dramatic increases in disability
transfer benefits. As a result, in 1998, the average man with a disability
received a larger share of his household income from disability transfers
than from earnings, a reversal of the pattern observed in 1980 and 1989.
The right side of Figure 2 compares these trends in household size-adjusted
income for the median man with and without a disability. In 1998, median
household income for men with disabilities was still below its 1989 business
cycle peak. In contrast, the household income of the median man without
a disability grew across all three years. Hence not only was household
income lower for the median man with a disability in 1998 than it was
in 1989, it also was lower relative to the rest of the male population.
Gains in household income across the distribution
While it is important to track changes in the median man with a disability,
it also is important to document how common these patterns were across
the entire male population with disabilities. Figure
3 shows the dollar difference in real household size-adjusted income
by percentile of the income distribution for men with disabilities, with
the lines representing income changes between 1980 and 1989, and 1989
and 1998. Where the line is above zero, households of men with disabilities
in that percentile had higher real incomes than households of men
with disabilities 10 years earlier (e.g., in 1989 compared to in 1980);
where the line is below zero, households of men with disabilities had
lower incomes than households of men with disabilities in the comparison
period.
In contrast to the population of men without disabilities which gained
across the entire income distribution over both business cycles (not shown),
among the population of men with disabilities, income levels in some portions
of the distribution increased while values in others fell. In both periods
examined, the lower part of the distribution experienced only modest changes
in income. BDH show that this part of the distribution was, in part, protected
by disability-related transfers, which are indexed to inflation and often
completely offset declines in own labor earnings. The primary difference
between the two periods occurs in the upper half of the distribution.
Over the 1980s business cycle all percentiles in this part of the distribution
gained. In contrast, over the 1990s business cycle, incomes in the middle
of the distribution (between the 50th and 65th percentiles) declined.
In fact, it is not until the 85th percentile and beyond that income increased.
BDH find that the decline in income in the middle of the distribution
during the 1990s is due primarily to large declines in labor earnings
that are only partially offset by increases in disability transfer income.
Conclusion
The recent decline in the importance of work as a source of household
income among working-age men with disabilities in the 1990s is a puzzling
phenomenon. Unlike the 1980s, where the increase in employment during
years of expansion generally offset employment declines during recessionary
years, the employment of working-age men with disabilities fell continuously
over the 1990s. While substantial increases in disability transfer income
in the 1990s replaced a significant fraction of the lost labor earnings,
it did not prevent most of the households of men with disabilities from
being worse off than their counterparts in 1989 and from losing economic
ground relative to the rest of the male population. Future research should
be aimed at discovering the cause of the unprecedented decline in employment
among men with disabilities.
Mary Daly
Economist
Richard Burkhauser
Andrew Houtenville
Cornell University
References
Burkhauser, Richard V., Mary C. Daly, and Andrew J. Houtenville. Forthcoming.
"How Working Age People with Disabilities Fared Over the 1990s Business
Cycle." In Ensuring Health and Income Security for an Aging Workforce,
eds. Peter Budett, Janice Gregory, and Richard V. Burkhauser. Kalamazoo,
MI: W.E. UpJohn Institute for Employment Research.
Burkhauser, Richard V., Mary C. Daly, and Andrew J. Houtenville. 2000.
"Changes in Employment and Income Among Working Age People with Disabilities
Over the Business Cycle." Mimeo. Cornell University.
Opinions expressed in this newsletter do not necessarily reflect
the views of the management of the Federal Reserve Bank of San Francisco
or of the Board of Governors of the Federal Reserve System. Editorial
comments may be addressed to the editor or to the author. Mail comments
to:
Research Department
Federal Reserve Bank of San Francisco
P.O. Box 7702
San Francisco, CA 94120
|
