Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts

of George Mason University and Stanford University's Hoover Institution. Our website is econtalk.org

where you can subscribe, find other episodes, comment on this podcast, and find links to

another information related to today's conversation. Our email address is mail at econtalk.org. We'd

love to hear from you. Today is April 2nd, 2012, and my guest is David Otter of MIT, David

Welcome to Econ Talk. Thank you very much. Our goal today is to lift a veil covering a phenomenon

that is extremely important and very little known. And that is what is going on with the

government-run Disability Insurance Program here in the United States. Part of the Social Security

Program, and today's discussion will draw on a recent working paper of David's that will

put a link up to, which is the unsustainable rise of the disability roles in the United States,

causes, consequences, and policy options. Let's start with some basics. What's the idea behind

the insurance program when did it start? How is it funded? Sure. So the Social Security Disability

Insurance Program was started in 1956. Intention is to ensure workers against loss of income and

access to health care in the event of a work limiting disability that ends their careers prior

to their reaching full retirement age. It's paid for by a part of the payroll tax, so

essentially 1.6% of earnings up to a certain amount annually is devoted to the Social

Security Disability Insurance Program. So after you worked approximately five years at a fairly

high level of participation, it's a pretty much full time. You will be insured under this program,

and then as long as you are insured, if you become disabled, you can apply for and qualify

for SSDI benefits. And if you're approved, if your application is accepted, what's the benefit level?

So the benefit level, a typical recipient will, at this point, will receive benefits of about $1,100

a month in cash benefits, and that is indexed inflation. So it rises over time in nominal terms to keep

...