The Price of Obesity

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.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

9 thoughts on “The Price of Obesity

  1. This is the case anytime there’s a dip in employment – people have more incentive to apply for disability benefits, so the rolls go up. It’s certainly not a direct relationship between people who become disabled and then apply – there are other inputs, and drawing conclusions about the unemployment rate from disability benefits application numbers is a little misleading, since each affects the other.

    By the way there’s typically a nine month wait between an application for disability benefits and a decision, so I wonder whether the government is counting applicaants or recipients… it would be strange not to count applicants, since the application process is terminated as soon as you go back to work.

  2. In Europe, there is a well-trodden path for window-dressing politically embarrassing unemployment rates by easing the eligibility criteria for disability benefits. I recall from years back, some illuminating Financial Times features on just this, which are inaccessible now except, perhaps, for those who have a subscription.

    The short answer is that we need to look at national participation rates of the working age population in employment, not just the official standardised unemployment rates, which tend to make the media headlines. Try Chart 5 in: http://europa.eu.int/comm/employment_social/employment_strategy/pdf/etf_annex2_en.pdf

    The EU Labour Force Survey for 2002, published in 2003, is at:
    http://www.eu-datashop.de/download/EN/inhaltsv/thema3/arbeitsk.pdf

    Other useful links at:
    http://www.unece.org/ead/pub/022/022_4.pdf
    http://www.ecb.int/pub/pdf/labourmarket2002.pdf

    The Scandinavian countries, the Netherlands and the UK come out well, with relatively high participation rates.

  3. “This is the case anytime there’s a dip in employment – people have more incentive to apply for disability benefits, so the rolls go up.”

    This is obviously true, the curiousity here is that this tendency now seems to be continuing and possibly accelerating accelerating now that the US is supposedly in recovery mode. Viz the 400,000 people who have apparently recently dropped out of the US labour market according to last Friday’s numbers.

  4. Well, you would certainly expect a lag, as I explained above. But the idea that the US is in recovery mode in terms of job is a little sketchy… just last week the job figures came out and they were much worse than expected. So far yes we are experiencing a recovery – but it’s a jobless recovery a la the early 90s.

  5. Goolsbee is overstating the impact. Based on his 1,000,000 number (which is also probably too large based on a reading of Autor and Duggan) to the BLS data on the unemployed and labor force and unemployment would have peaked at 6.9%, not 8%.

    Actually reading the research and checking the data is something I’d expect from a Prof. at the Univ. of Chicago.

  6. Bob,
    Interesting, that chart 5.

    A similar chart that Brad DeLong produced for the U.S.:
    http://www.j-bradford-delong.net/movable_type/2003_archives/003026.html
    (scroll down a bit)
    …shows U.S. Employment as a ratio of the working age population shrinking perhaps 2% between 97 and 02, from almost 64% to a bit above 61% (a worse employment rate than the EU15 as a whole).

    The trend for the U.S. employment/population ratio in the last three years does not show anything that could be considered a recovery.

  7. Patrick,

    I tend to get nervous about making cross-country comparisons with data, and especially with graphs, unless I feel reasonably confident the data are all on standardised basis. If national populations of working age are a clear enough notion, national employment data may be far from it. Differential treatments of part-timers, self-employment and non-civilian employment leave much scope for wobble across countries so I tend to look for standardised OECD data sources when comparing the EU with North America.

    Unhappily, I’ve not found data for general employment participation rates across the OECD for a more recent year than 2001: http://www.oecd.org/dataoecd/8/4/1874420.pdf

    However, I did come across this very recent working paper on female participation rates, which could be of interest to a passing reader:
    http://www.olis.oecd.org/olis/2003doc.nsf/43bb6130e5e86e5fc12569fa005d004c/b7c9b45202b081b1c1256e0000317f04/$FILE/JT00155820.PDF

    By way of a benchmark, I came across this from OECD Observer:

    “In 2002, the proportion of the population of working age who had a job in Canada and Denmark was, respectively, 72% and 77%. These figures are higher than those in the UK and the US, which can be regarded as good performers. . .However, it is interesting to note that the employment rate among unskilled workers in Canada and Denmark, at practically 55% and 63% respectively, is also relatively high.” Sadly, there were no data for other countries.

    I take Edward’s point about the acceleration in the decline of the US employment ratio indicating that there is no sign of an upturn in the job market there. In the Eurozone, the big immediate business worry is the appreciating Euro against the US Dollar and that is when employment rates in the major Eurozone economies were rather on the low side compared with the US.

    Ever since reading that the growth of average real earnings in the Netherlands during the 1980s was kept at about 1% a year, I think we have to look at the smaller economies differently from the large ones. It is sometimes possible to operate a de facto incomes policy by consensus in a small economy when that is unthinkable in a large one. Yet another reason for being cautious about some EU sourced analysis is that I occasionally get a feeling the analysis is driven to score points against the US or the “Anglo-Saxon” countries.

  8. Bob,
    Those two graphs aren’t useful for anything but the most cursory of analyses:
    (1) that u.s. employment/working age pop. is within the range of European numbers. If perhaps on the low end. Definitely not head and shoulders above Europe.
    (2) That the U.S. recovery of 2001 is a mirage.

    That OECD paper you found with the “2001” data, seems to have a different definition of workforce participation whose numbers do not make it comparable to either graph.

  9. The growth in American disability pay out rates has less to do with “book cooking” than it has to do with American welfare reform.

    The end of permanent welfare benefits resulted in large numbers of people moving over to Supplimental Social Security disability pay outs.

    In short, we are seeing an intergovernment cost shifting game between local and state government on one side and the Federal government on the other.

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