Economist for Dean Lerxst gets hold of something really interesting in a post yesterday ( which Calpundit also picks up on). He draws our attention to the fact that some US economists have recently been arguing that there has been a significant rise in individuals claiming disability benefits and this has taken a large number of workers out of the labor force, thus – at a stroke – reducing the “official unemployment rate”. The research by Mark Duggan and David Autor is discussed in a NYT op ed by University of Chicago Professor Austan Goolsbee.
Lerxst also highlights the significant role obesity may play in this. He cites an article in Friday’s Wall Street Journal describing a new study by RAND Health economists showing that obesity may actually be the “primary” explanation for the rise in the disability rolls. According to Dana P. Goldman, director of health economics at Rand and the principal investigator on the study cited in the WSJ there is “evidence to support (the idea) that obesity may be a primary reason.”
Now all of this is extraordinarily interesting. Not least for us Europeans, since anyone over here in Europe knows that this kind of thing has been an issue for years in our employment numbers. The Netherlands, which allegedly had a 2% official rate, but notoriously had a real rate of anything from 5% upwards depending on how you interpret the stats, had very substantial numbers of people on disability allowances.
This phenomenon is obviously partly demographic: as your workforce gets older more people are liable to become disabled, and as Lerxst points out with medical advances more people survive who may not have perfect health. But it can also be encouraged by employers who want to practice ‘age churn’ and political administrations who want to ‘mask’ existing unemployment. It is in this context that I don’t see the practical viability of all these policy pronouncements about easying the demographic impact by encouraging higher participation rates among older workers: their existing employers don’t want them, and they don’t want to do the low paid jobs (see Japan here) that they are offered.
Incidentally, as a European, I’d like to personally protest about all the mud that is thrown at us about our welfare states. Unfortunately most of our welfare states are going to disappear in their present form because our demography makes them unsustainable, not because they weren’t nice things to have in their day. Now it turns out that US job numbers have been being massaged all through the 90’s…now come on, let’s not try and have our cake and eat it. A little less hypocrisy please!
The reality is that we didn’t have a mild recession. Jobs-wise, we had a deep one.
The government reported that annual unemployment during this recession peaked at only around 6 percent, compared with more than 7 percent in 1992 and more than 9 percent in 1982. But the unemployment rate has been low only because government programs, especially Social Security disability, have effectively been buying people off the unemployment rolls and reclassifying them as “not in the labor force.”
In other words, the government has cooked the books. It has been a more subtle manipulation than the one during the Reagan administration, when people serving in the military were reclassified from “not in the labor force” to “employed” in order to reduce the unemployment rate. Nonetheless, the impact has been the same.
Research by the economists David Autor at the Massachusetts Institute of Technology and Mark Duggan at the University of Maryland shows that once Congress began loosening the standards to qualify for disability payments in the late 1980’s and early 1990’s, people who would normally be counted as unemployed started moving in record numbers into the disability system ? a kind of invisible unemployment. Almost all of the increase came from hard-to-verify disabilities like back pain and mental disorders. As the rolls swelled, the meaning of the official unemployment rate changed as millions of people were left out.
By the end of the 1990’s boom, this invisible unemployment seemed to have stabilized. With the arrival of this recession, it has exploded. From 1999 to 2003, applications for disability payments rose more than 50 percent and the number of people enrolled has grown by one million. Therefore, if you correctly accounted for all of these people, the peak unemployment rate in this recession would have probably pushed 8 percent.
The point is not whether every person on disability deserves payments. The point is that in previous recessions these people would have been called unemployed. They would have filed for unemployment insurance. They would have shown up in the statistics. They would have helped create a more accurate picture of national unemployment, a crucial barometer we use to measure the performance of the economy, the likelihood of inflation and the state of the job market.