Disability claims artificially lower unemployment rate

Unemployment rates soared in Pittsburgh and throughout the nation during the recent economic bust; disability rolls are ready to take up that torch. Now that the economy is slowly sputtering back to life, it seems that unemployment rates are starting to dip — which some say is a sure sign of improvement.

The number of unemployed Americans may be artificially low as former workers are dropping out of unemployment lines and into Social Security queues. More specifically, more and more unemployed workers are applying for Social Security Disability benefits, citing mental illnesses such as depression.

It could be that the stress of being out of work and actively looking for a job is really causing people serious mental health problems, said a research economist. Alternatively, workers could be looking for another safety net once their unemployment insurance runs out.

Unlike unemployment insurance, which runs out after two years, disability benefits do not have an attached timer. In fact, regardless of age or reason for applying, once a person becomes a beneficiary, they are unlikely to ever return to the workforce. Currently, approximately 5.3 percent of people from ages 25 to 64 are currently collecting Social Security Disability checks each month. Across all demographics of America, more than 10.5 million people are receiving disability checks. That huge number of beneficiaries costs the federal government $200 billion each year, according to recent research from JPMorgan Chase.

Historically, disability benefits went to blue collar workers who suffered debilitating injuries or illness that prevented them from returning to work. Recently, there has been a surge of white collar workers applying for benefits, particularly older men.

An unexpected consequence of so many workers applying for disability benefits is that they have dropped out of the “unemployed and looking” pool. Without those workers seeking jobs, the unemployment rate is deceptively low.

Source: New York Post, “Jobless disability claims soar to record $200B as of January,” Janet Whitman, Feb. 19, 2012

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