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When the jobs data were released last week, it was revealed that only 115,000 new jobs were created, well below the 165,000 predicted by the media-anointed economic “experts,” and significantly below the 125,000 jobs-per-month pace required just to keep pace with the number of people entering the work force. Yet in an apparent paradox, the unemployment rate dropped from 8.2 percent to 8.1 percent. Presumptive Republican presidential candidate Mitt Romney explains half of it. “There is something about that 8.1 percent figure you ought to know,” he told a crowd at a town hall-style meeting in Cleveland yesterday. “You might assume that that number came down from 10 percent to 8.1 percent because of all the jobs that were created, and that assumption would be wrong. The reason that percent came down was because of all the people that dropped out of the workforce.”
Mr. Romney is correct. Much of the lower number is indeed attributable to the fact that 342,000 Americans gave up looking for work, and those people are no longer counted as being unemployed. Yet there is another, far more ominous element to the paradox that is part of the equation as well: the number of Americans receiving Social Security Disability Insurance (SSDI) has soared.
Since 2010, and directly coinciding with the time millions of Americans used up their 99 weeks of unemployment insurance, disability claims have risen by 2.2 million. And precisely like Americans who have given up looking for work, those receiving disability payments are neither counted as part of the workforce, or part of the unemployed. The rise in the number of claims is daunting. From December 2007 to April 2012, the number of workers receiving SSDI jumped 22 percent, from 7.1 million Americans to 8.7 million. According to economists at JPMorgan Chase & Co. and Morgan Stanley, that figure explains as much as one quarter of the decline in the labor force participation rate.
“How we measure and understand what’s going on in the economy can be influenced by the degree to which various public-support programs are available and being used,” said Michael Feroli, chief U.S. economist at JPMorgan in New York. “With a rising number of disability beneficiaries, there are both lower unemployment rates and lower participation rates.”
That’s an understatement. The latest drop in labor force participation, from 63.8 percent in March to 63.6 percent in April, represents the lowest rate since 1981–fully 31 years ago.
The Obama administration’s “solution” to the problem? “Workers on SSDI rarely return to the labor force, resulting in a loss to society of the economic contribution those workers could have made,” said a report written in December 2011 by the National Economic Council, Domestic Policy Council, Labor Department and President’s Council of Economic Advisers. “Thus, keeping the long-term unemployed in the labor force should be a priority.” Congress, undoubtedly influenced by election year politics obliged. In February, unemployment benefits were extended through the end of 2012 as part of the Middle Class Tax Relief and Job Creation Act. That move was likely buttressed by research from David Greenlaw, a managing director in New York at Morgan Stanley. In March, he noted that more than 99 percent of all SSDI beneficiaries remain in the program until retirement age.
In other words, give people a temporary extension in unemployment compensation, or they might go on the dole permanently.
A 2006 research paper written by MIT economist David Autor and Mark Duggan at the University of Pennsylvania’s Wharton School in Philadelphia gets to the nub of the problem. SSDI “appears in practice to function like a nonemployability insurance program for a subset of beneficiaries,” they wrote. Less-stringent screening procedures, more attractive benefits and a waning need for less-skilled workers have bolstered SSDI rolls, they added.
Autor followed up that report with one written in 2011, in which he contended that while the “SSDI program is a central component of the U.S. social safety net, it suffers from two substantial ailments that limit its effectiveness and threaten its long-term viability. First, the program is ineffective in assisting the vast majority of workers with less severe disabilities to reach their employment potential or to earn their own way. In fact, the program provides strong incentives to applicants and beneficiaries to remain out of the labor force permanently, and it provides no incentive to employers to implement cost-effective accommodations that would enable disabled employees to remain on the job….Second, the program’s expenditures are extremely high and growing rapidly.”
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