FRBSF Economic Letter
2000-28 | September 22, 2000
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.
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.
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.
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.
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.
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.
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.
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