The Tremendous Growth of Disability in America

Submitted by Mark Hanna

Courtesy of MarketMontage. View original post here.

We were early (back in 2007) documenting the swelling of the food stamp program – whih has now become a popular topic in the blogosphere the past few years.   We also were early to the disability roll surge which is only now getting some attention as the job market “fails to recover”.   While the “easy” excuse for the labor force participation rate is “people are getting old and leaving the workforce” that is a quite lazy explanation that doesn’t take a hard look at the data.  In fact labor participation at older ages is quite high and steady – much of the degradation has come at the young age groups as they have been squeezed out as older people have been forced to take lower paying jobs that once were the dominating by youth.  But also lost in the “easy explanation” is the huge surge in disability rolls.  JP Morgan’s economist believes 1/4 of the drop in the labor force participation rate can be explained by people moving to disability.  (Many other people are trying to tread water by taking on ever more student debt and staying in school)  We now have 5.4% of all working age Americans on this program which is more than double the 1990 percentage.  This even as much of the “back breaking” manual labor of the past has been moved to China or Mexico.  Like all social programs certainly some people are there for reasonable reasons but with the influx of “back injuries” and “mental ills” it sure seems suspicious.   Further given that people qualify for Medicare after two years, the incentives are not there to leave especially if you are not the type that will earn $50K+ on your own.  There are two great stories over the past few weeks those interested in this topic should peruse, one from NPR and one from the WSJ.

• NPR: Unfit for Work – The Startling Rise of Disability in America
• WSJ: Workers Stuck in Disability Stunt Economic Recovery

• Michael Feroli, chief U.S. economist for J.P. Morgan estimates that since the recession, the worker flight to the Social Security Disability Insurance program accounts for as much as a quarter of the puzzling drop in participation rates, a labor exodus with far-reaching economic consequences.
• Economists say relatively few people are likely to trade their disability checks for paychecks, in part because the program doesn’t give much incentive to leave.  Many newcomers to the disability roster are low-wage earners with limited skills, Mr. Autor said, and they are “pretty unlikely to want to forfeit economic security for a precarious job market.”
• Payments, tied to a worker’s wage history, average $1,130 a month, which totals $13,560 a year. That is about $2,000 a year more than the federal poverty level for a single person and about $2,000 less than full-time wages at the federal minimum of $7.25 an hour. After two years, people on disability are eligible for Medicare health insurance—another government benefit that encourages recipients to stay put.
• Between December 2007, when the recession started, and June 2009, when it ended, the number of Americans receiving federal disability benefits grew to 7.6 million from 7.1 million. Then the rolls swelled, reaching 8.9 million in March, about 5.4% of the civilian workforce ages 25 to 64, according to J.P. Morgan estimates. That compares with 1.7% of the U.S. workforce in 1970.
• Mr. Feroli estimated the exodus to disability costs 0.6% of national output, equal to about $95 billion a year.
• Last year, Social Security paid nearly $137 billion to 8.8 million disabled workers and 2.1 million of their spouses and children; related Medicare costs were about $80 billion.   Program trustees estimate that by 2016, Social Security won’t be able to pay all of its disability claims.
• The economic downturn drove about 2.2 million additional applications for disability, relative to what would have occurred in the absence of the slump, according to estimates by Mark Duggan, an economics and public-policy professor at the University of Pennsylvania’s Wharton School, who has co-written research on the disability program with Mr. Autor.

Many claims – in fact the majority now –  are in the “hard to prove” category:

• With an expanded list of disabilities added by Congress in 1984, more than half of people awarded benefits now qualify because of musculoskeletal problems—including back pain—mood disorders and other mental problems, according to Social Security data.

Perverse incentives anyone?

• Some states use the program to reduce welfare costs, according to congressional testimony last year by David Stapleton, director of the Center for Studying Disability Policy at nonpartisan consulting firm Mathematica Policy Research.  States save money when federal disability checks replace state-paid benefits. Workers on federal disability also can switch from state-supported health insurance programs—such as Medicaid—to Medicare, he said.

It’s not just the “old”:

• Of the nearly nine million former workers receiving federal disability payments, more than 2.5 million are in their 20s, 30s and 40s.

Once you are on, you never really leave:

• In 2011, the latest data available, fewer than 0.5% of beneficiaries left disability rolls to work again.

[Aug 23, 2011: Social Security Disability Heads Towards Eventual Insolvency as Benefit Program Flooded with New Applicants]

[Apr 7, 2011: Nearly 1 in 20 Working Age are on Disability, a Doubling Versus 1990]

[Apr 4, 2011: Economix – The Dependence Economy; Only Half of Average Americans Income Comes via Wages]

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