Uses 25 years of Medicare administrative data (M Disability Insurance (DI) beneficiaries gaining coverage at ages 22–62, 1993–2017) to disentangle the health-shock and entry-cost channels of DI countercyclicality. Recession-induced DI entrants have lower medical spending and mortality than typical recipients — the opposite of what health shocks predict. Using the age-50/55 discontinuities in the Medical-Vocational Grid Rules as instruments for pure entry-cost variation, the paper finds that marginal spending functions at mean and high unemployment are statistically indistinguishable. Health shocks account for only of DI cyclicality; entry-cost reduction drives –. Workers over 50, subject to the looser grid rules, generate two-thirds of all recession-induced DI entry.
"Countercyclical DI enrollment stems overwhelmingly from reduced opportunity costs during economic downturns, with no detectable role for health shocks."
"This finding suggests inadequate safety net support for individuals with functional limitations during economic downturns, and that temporary disability benefits or employer accommodations may better serve their needs than permanent DI awards."
The cleanest identification in this literature. The age-50/55 grid rule discontinuity is a compelling instrument — it varies entry costs without affecting health — and the MTE framework is the right tool for the question. The result decisively settles the debate opened by Cutler Meara and Richards-Shubik 2012 — Unemployment and Disability Evidence from the Great Recession and partially addressed by Cutler Meara Powell Richards-Shubik and Stewart 2015 — Why Do Disability Insurance Claims Increase During Recessions. The welfare finding (2× insurance value for 50+) is a meaningful addition beyond the mechanism question and has direct policy relevance for grid rule reform debates.