Maestas 2019 — Identifying Work Capacity and Promoting Work

Summary

A comprehensive review and reform proposal published in Annals of the American Academy of Political and Social Science (2019, 686(1): 93–120). Maestas synthesizes five high-level findings from two decades of Social Security Disability Insurance (SSDI) research, diagnoses why past work-incentive reforms have failed, and proposes two interlocking structural reforms: (1) replacing the obsolete medical-vocational grid with a modernized, individualized work capacity measurement system; and (2) introducing partial disability benefits. The unifying insight is that the system's fundamental problem is early — work capacity erodes rapidly during the multi-year application process, making post-enrollment interventions ineffective by design.

Key Claims

• Five research findings ground the reform case:

  1. SSDI participation reflects labor market demand and program incentives, not only underlying health. Non-health factors (weakening demand for low-skilled labor, rising inequality) dominated growth in 1985–1993; demographic factors took over 1993–2007 (Liebman 2015; Autor and Duggan 2003).
  2. Roughly 43% of SSDI applicants have some residual work capacity; approximately 18% qualify for benefits despite having it (calculations from Maestas, Mullen, and Strand [MMS] 2013). Employment among awarded marginal applicants would have been 26–48 percentage points (pp) higher absent SSDI (MMS 2013; Autor, Maestas, Mullen, and Strand [AMMS] 2015).
  3. Work capacity decays during the multi-year application process via skill depreciation and loss of employer attachment — AMMS (2015) raises the causal labor supply estimate from 26 pp (MMS 2013) to 48 pp precisely by instrumenting for processing delay separately.
  4. Post-enrollment work incentives have uniformly failed: Ticket to Work (near-zero participation, no employment effect); Benefit Offset National Demonstration ($1-for-$2 BOND): zero employment effect (Gubits et al. 2018). All target beneficiaries after years of labor force exit — too late.
  5. SSDI insurance value is large (Low and Pistaferri 2015; Deshpande, Gross, and Su 2019) and likely offsets distortionary costs. The optimal reform preserves protection while reducing efficiency costs.

• SSDI trends as of 2019: Caseload peaked at ~9 million in 2014, declined since 2015 — driven by Baby Boomer aging out (Full Retirement Age [FRA] conversion) plus a sharp fall in Administrative Law Judge (ALJ) hearing-level allowance rates (52% in 2010 → 38% in 2016), attributed to Social Security Administration (SSA) Appeals Council management initiative since 2010. Employment among people with disabilities began rising in 2014 — the first sustained reversal of a decades-long downward trend.

• Grid limitations (three structural failures):

  1. Based on the Dictionary of Occupational Titles (DOT) (final publication: 1990s) — ignores decades of automation-driven job restructuring that eliminated many physically demanding tasks.
  2. Residual functional capacity has only four coarse exertional categories (sedentary/light/medium/heavy) — provides almost no guidance for mental impairments, sensory disorders, or pain, which are now the dominant diagnostic categories driving awards.
  3. Fixed age thresholds (e.g., disability decision flips at 50 and 55) ignore individual variability in biological aging, secular gains in healthy life expectancy, and the socioeconomic status (SES) gradient in those gains.

• Reform #1 — Individualized work capacity measurement replacing the grid:

  • Measure functional capacity across all ability domains using the Work Disability Functional Assessment Battery (WD-FAB): 8 physical and behavioral domains (Basic Mobility, Upper Body Function, Fine Motor Function, Community Mobility, Communication and Cognition, Mood and Emotions, Resilience and Sociability, Self-Regulation); 300+ adaptive items; computerized adaptive testing; 15–20 minute administration; validated in samples of SSDI applicants (Marfeo et al. 2013, 2015).
  • Link WD-FAB outputs to the Occupational Requirements Survey (ORS): SSA/Bureau of Labor Statistics (BLS) employer-side job requirements survey (replacing the DOT); nationally representative (~90% of civilian workers covered as of 2018); would need synchronization with WD-FAB via a crosswalk between functional domains and job demands.
  • The Netherlands system as model: physician assessment → occupational database → algorithm → ranked feasible jobs → second-ranked job's earnings = applicant's estimated residual earnings capacity → percent loss = benefit amount.
  • Output: individualized list of feasible jobs + estimated residual earnings capacity as the core disability metric, replacing the coarse categorical grid rules.

• Reform #2 — Partial disability benefits:

  • Formula: disability rating = (1 – residual earnings capacity ÷ pre-disability earnings) × 100%. Below–substantial gainful activity (SGA) residual capacity → 100% rating (full benefits as now). Above-SGA → partial benefit proportional to earnings loss.
  • Applicants could apply while still working, preserving employer attachment and human capital.
  • Paired with a generalized benefit offset (Gokhale 2015) that subsidizes earnings at higher work levels rather than merely taxing them less — a true work incentive rather than reduced disincentive.
  • Work continuing disability reviews (CDRs) eliminated; medical CDRs maintained. Medicare eligibility extended indefinitely.
  • Fiscal risk managed: Yin (2015) projects partial benefits reduce net SSDI expenditures because: (a) some current full-benefit recipients would receive partial instead; (b) average duration at full benefits shortens as transitions to full benefits are delayed.
  • Main risk: moral hazard on the entry margin (workers currently choosing work might switch to partial SSDI). Manageable via ceiling on insurable earnings (e.g., 5×SGA ≈ $75,000 in 2019).

• Why the $1-for-$2 BOND offset failed: Applicants must still demonstrate full disability by not working during the multi-year application process. The incentive to work arrives after years of labor-market exit; by then, capacity has decayed. A post-enrollment offset without a pre-enrollment partial-benefits scheme intervenes too late for the same reason as Ticket to Work.

Concepts Introduced or Extended

• Vocational Grid
• Disability Insurance Program
• Causal Effects of DI Receipt

Entities Mentioned

• Nicole Maestas
• Social Security Administration

Quotes

"The case for SSDI reform rests on the need to reoptimize the program to account for change in the composition of applicants. Originally a program for older men with clear-cut, permanent impairments (e.g., circulatory diseases), SSDI now serves men and women of all ages who more often than not have a musculoskeletal or mental impairment and diminished employment opportunities."

"What these policies have in common is that they target individuals only after they have enrolled in SSDI, having already spent significant time out of the labor force."

My Take

This is the most influential programmatic statement of the "work capacity decay" diagnosis of SSDI dysfunction. The key diagnostic move — that post-enrollment work incentives fail because they intervene after the damage is done — is well-grounded in the AMMS (2015) evidence and reshapes how one thinks about BOND's null result. The two reforms are internally coherent: partial benefits (which enable application while still working) and modern work capacity measurement (which makes partial ratings credible and consistent) are genuinely interlocking rather than independent. The main empirical gap Maestas acknowledges: the current evidence tells us how much residual work capacity exists in the SSDI population but not what kind — what specific jobs marginal beneficiaries could perform is unknown. The WD-FAB/ORS system is specifically designed to fill that gap. One concern not fully addressed: the administrative feasibility of scaling a 15–20 minute individualized assessment and a live occupational database matching system to ~3 million annual DI applications. The Netherlands analogy is suggestive but operates in a much smaller, more homogeneous labor market.