Are federal disability benefits becoming a general safety net?
One of the often-told stories of the anemic economic recovery has been the dreary prospects for workers. As of July 2012, there were 811,000 more long-term unemployed than when the recession officially ended in June 2009, and there were 412,000 more who had given up looking for work. The Bureau of Labor Statistics' expanded unemployment measure was 15 percent in July 2012.
As a result, discouraged workers are increasingly dropping out of the labor force. While the number of people with jobs has climbed 2.7 million since June 2009, the pool of Americans who aren't in the labor force at all has shot up by 7.5 million.
A great many of these people will likely never come back to the workforce even if the economy does rebound: not because they've aged into retirement but because they've signed up instead to get disability benefits -- joining the federal government's Social Security Disability Insurance (SSDI) program. This program, started in the late 1950s, was meant to provide much-needed benefits to those who were too disabled to work, but weren't yet eligible for Social Security benefits. The current massive exodus of workers to the disability rolls could have worrisome implications for the solvency of the SSDI program -- which is scheduled to become insolvent in less than four years -- as well as the federal government's broader entitlement spending problem. The shift could also cut the growth potential of the U.S. economy by permanently shrinking the available pool of labor....
Related:
The Unsustainable Rise of the Disability Rolls in the United States: Causes, Consequences, and Policy Options
Source: David H. Autor, National Bureau of Economic Research Working Paper No. 17697, December 2011
(subscription required)
Supporting Work: A Proposal for Modernizing the U.S. Disability Insurance System
Source: David H. Autor, and Mark Duggan, The Brookings Institution and The Hamilton Project, December 2010
Social Security Disability Insurance: Participation Trends and Their Fiscal Implications
Source: Congressional Budget Office, Economic and Budget Issue Brief, July 22, 2010
The Impact of Unemployment Insurance Extensions on Disability Insurance Application and Allowance Rates
Source: Matthew S. Rutledge, Center for Retirement Research at Boston College Working Paper No. 2011-17, October 2011
Why are more people leaving the labor force, and what are they doing?
Since September of last year, the unemployment rate in the United States has declined nearly a full percentage point, from 9 percent to 8.3 percent. On its face, this is an encouraging signal about the health of the labor market. But some of the change is due to a potentially troubling trend: a dramatic decline in the number of Americans who are part of the labor force. Prior to the recession, 66 percent of the population (not counting active duty military or people in a nursing home or in prison) over the age of 16 was in the labor force. Just four years later, this rate -- known as the "labor force participation rate," or LFPR -- has fallen to 63.7 percent. While this might not sound like a large decline, it is unprecedented in the postwar era.
The dropoff is all the more striking because it does not include unemployed workers who are actively seeking work; such workers are still considered to be part of the labor force. It is only when the unemployed decide to stop looking for jobs, perhaps because they have given up on the possibility of finding one, that they are considered out of the labor force -- although they might still want to work, and would accept jobs if they were offered.
The current low labor force participation rate is the result of both long-term structural changes, such as an aging population and decreased demand for low-skill workers, and cyclical factors, namely the lingering effects of the 2007-09 recession. While it's difficult to distinguish between the effects of demographics and the effects of the business cycle on labor force participation, why people drop out of the labor force -- and what they do when they're not working -- has important implications for the future growth of the U.S. economy.
Related:
The Recent Decline in the Labor Force Participation Rate and Its Implications for Potential Labor Supply
Source: Stephanie Aaronson, Bruce Fallick, Andrew Figura, Jonathan Pingle, and William Wascher, Brookings Papers on Economic Activity, Vol. 37 no. 1, 2006
Time Use During Recessions
Source: Mark Aguiar, Erik Hurst, and Loukas Karabarbounis, National Bureau of Economic Research Working Paper No. 17259, July 2011
The Rise in the Disability Rolls and the Decline in Unemployment
Source: David H. Autor, and Mark G. Duggan, Quarterly Journal of Economics, Vol. 118, no. 1, February 2003
The Labor Market in the Great Recession: An Update to September 2011
Source: Michael W.L. Elsby, Bart Hobijn, Aysegul Sahin, and Robert G. Valletta, Brookings Papers on Economic Activity, Vol. 43 no. 2, Fall 2011
The Increased Role of Flows Between Nonparticipation and Unemployment During the Great Recession and Recovery
Source: Marianna Kudlyak, David A. Price, Federal Reserve Bank of Richmond Economic Brief, no. 12-06, June 2012
The Unemployment Gender Gap During the 2007 Recession
Source: Aysegul, Sahin, Joseph Song, and Bart Hobijn, Federal Reserve Bank of New York Current Issues in Economics and Finance, Vol. 16 no. 2, February 2010
Disentangling the Channels of the 2007-2009 Recession
Source: James H. Stock, Mark W. Watson, Presented at the Brookings Panel on Economic Activity, Washington, D.C., March 22-23, 2012.
Interpreting the Recent Decline in Labor Force Participation
Source: Willem Van Zandweghe, Federal Reserve Bank of Kansas City Economic Review, Vol. 97 no. 1, First Quarter 2012
The U.S. Congress Joint Economic Committee released the eleventh installment of its "Understanding the Economy: State-by-State Snapshots" 2012 series, which provides easy access to the major economic indicators in all 50 states and the District of Columbia in the areas of jobs, unemployment, personal earnings and housing.
Key economic statistics for each state include:
• Jobs created or lost since the start of the recession;
• Jobs saved or created by the Recovery Act;
• Unemployment rates;
• Per capita earnings; and,
• The condition of the housing sector.
See also:
Executive Summary
From the abstract:
The recession of 2007-09 witnessed high rates of unemployment that have been slow to recede. This has led many to conclude that structural changes have occurred in the labor market and that the economy will not return to the low rates of unemployment that prevailed in the recent past. Is this true? The question is important because central banks may be able to reduce unemployment that is cyclic in nature, but not that which is structural. An analysis of labor market data suggests that there are no structural changes that can explain movements in unemployment rates over recent years. Neither industrial nor demographic shifts nor a mismatch of skills with job vacancies is behind the increased rates of unemployment. Although mismatch increased during the recession, it retreated at the same rate. The patterns observed are consistent with unemployment being caused by cyclic phenomena that are more pronounced during the current recession than in prior recessions.
From the press release:
The American Hospital Association (AHA), the American Medical Association (AMA) and the American Nurses Association (ANA) today released a new report that found up to 766,000 health care and related jobs could be lost by 2021 as a result of the 2 percent sequester of Medicare spending mandated by the Budget Control Act of 2011.
The report, produced by Tripp Umbach, a firm specializing in conducting economic impact studies, measures the anticipated effect of these cuts in Medicare payments on health care providers and other industries. The Tripp Umbach model reflects how reductions in Medicare payment for health care services will lead to direct job losses in the health care sector; reduced purchases by health care entities of goods and services from other businesses, which in turn will lay-off workers; and reduced household purchases by workers who lose their jobs. As the impact of these cuts ripples through the economy, jobs will be lost across many sectors beyond health care.
]]>From the abstract:
The Great Recession hit black workers harder; the unemployment rate was higher for non-Hispanic black than for non-Hispanic white or Hispanic workers, and black unemployed workers had the lowest receipt of Unemployment Insurance benefits, 23.8 percent compared to whites' 33.2 percent. Differences persist even after controlling for education, past employment, and reasons for unemployment.
Related:
Most likely to be Among Long-term Unemployed, Relatively Few Blacks get Unemployment Insurance Benefits
Source: Urban Institute, July 24, 2012
How Do Unemployment Insurance Modernization Laws Affect the Number and Composition of Eligible?
Source: Stephan Lindner, Austin Nichols, Urban Institute, July 23, 2012
Disadvantaged Workers and the Unemployment Insurance Program
Source: Maria E. Enchautegui, Urban Institute, July 23, 2012
Recent trends in the characteristics of unemployment insurance recipients
Source: Marios Michaelides and Peter R. Mueser, Monthly Labor Review, Vol. 135, Number 7, July 2012
There's no shortage of uncritical reporting on the notion that employers, and particularly manufacturers, can't find enough qualified workers even in a time of high unemployment. ...Even with a pool of hundreds of thousands of auto workers no longer in the industry, automakers complain of a labor shortage. Something doesn't quite add up...Industry only has itself to blame for any lack of loyalty from employees, who have been laid off, outsourced, and offshored for so long that they'd be silly to count on a company for the long term (and don't talk about "unstoppable" forces like globalization, which were spurred on by intentional political choices made with the support of business)....
Related:
CNNMoney can't find the workers, either - A model story for the iffy skills-gap meme
Source: Ryan Chittum, Columbia Journalism Review, The Audit, August 14, 2012
From the press release:
A new study released today by the Georgetown University Center on Education and the Workforce finds that almost half of the jobs lost in the recession that began in December, 2007 have been recovered and virtually all of those jobs required some form of postsecondary education. Experts say this data demonstrates the ongoing importance of education beyond high school for individual workers and our national economy. The wage advantage for workers with a bachelor's degree or better over high school has remained high and has held mostly stable at 97 percent. The wage premium for bachelor's degrees or better relative to high school degrees skyrocketed from 44 percent in 1981 to a 100 percent in 2005 and has only fallen to 97 percent since the beginning of the recession.
See also:
- Executive Summary
- Slide Show
From the press release:
Thirty states will have to pay back nearly $1 billion by the end of September for federal funds borrowed to cover unemployment insurance, but a new analysis from the National Employment Law Project finds that much of the financial pain facing these states could have been avoided with more responsible financing of their rainy-day funds leading up to the Great Recession. With jobless fund debt that peaked at $50 billion in 2011, many states are now slashing the safety net designed to help unemployed workers - even though the main source of the debt, the NELP report shows, was unsound and unnecessary employer tax breaks during better economic times, leaving states unprepared for the recession.
From the press release:
A new economic impact analysis concludes that 2.14 million American jobs could be lost if the Budget Control Act's sequestration mandate takes effect on January 2, 2013. That is the date that budget cuts of $1.2 trillion start throughout government unless Congress and the administration agree on a solution....The analysis concludes that the automatic spending cuts mandated in the Budget Control Act of 2011 affecting defense and non-defense discretionary spending in just the first year of implementation will reduce the nation's GDP by $215 billion; decrease personal earnings of the workforce by $109.4 billion and cost the U.S. economy 2.14 million jobs....According to "The Economic Impact of the Budget Control Act of 2011 on DOD and Non-DOD Agencies," 48,059 jobs in healthcare, 98,953 in construction, 473,250 in manufacturing and 617,449 federal jobs are at risk. The study outlines the impacts in all 50 states with California, Virginia and Texas experiencing the largest potential jobs loss and most states taking five-digit job losses....
Men in their prime working age, defined as men between the ages of 25 and 64, constitute 33 percent of the civilian non-institutionalized population in the United States. At the trough of the 1969-1970 recession, 6.5 percent of this group (henceforth, "population") were out of the labor force (OLF), 90.8 percent were employed, and 2.7 percent were unemployed. Since then, the employment-to-population ratio has trended persistently downward, while the OLF-to-population ratio has increased substantially.
In 2010, the aftermath of the 2007-2009 recession, the employment-to-population ratio of this same group declined to an all-time low of 76.3 percent, while the OLF-to-population ratio increased to an all-time high of 14.7 percent.
In this article, we investigate the extent to which the change in the sociodemographic composition of the population (by age, educational attainment, marital status, and race) has contributed to the changes in the aggregate labor market outcomes. Our emphasis on the compositional changes in the sociodemographic characteristics of the population is motivated by a literature rife with correlations between sociodemographic factors and labor market outcomes. In particular, older workers typically experience lower rates of labor force participation and, conditional on participating, older workers are less likely to be unemployed than younger workers (see, for example, Shimer 1999). The literature also finds that (i) more highly educated workers have a higher opportunity cost of not working; (ii) married men are more likely to participate in the labor force and, conditional on participation, more likely to be employed; and (iii) non-white persons are usually underrepresented in the labor force and employment. Thus, one expects a strong association between labor market outcomes and the demographic composition of the labor force, which serves as a reduced-form representation of underlying structural relationships.
See also:
abstract
From the summary:
In 2006, Massachusetts enacted an ambitious health care reform bill that greatly expanded insurance coverage in the state. This brief explores whether the State's reform initiative led to a dampening of employment and, thus, economic growth. Employment trends in Massachusetts immediately after health reform was implemented and over the period of the recession closely mirrored those of comparison states that had similar employment patterns to Massachusetts prior to health reform. The evidence suggests that Massachusetts has achieved its goal of near-universal health insurance coverage under its 2006 health reform initiative, with no indication of negative job consequences.
Nearly all states coped with sizable private sector job losses during the recession along with now-sluggish growth. How these private sector cuts have carried over to the public sector, though, has varied greatly across the country.
While public payrolls generally downsized in recent years, a Governing analysis of Labor Department data finds state and local government reductions being applied unevenly so far, with employment growing or remaining roughly unchanged in about half of states since the start of the recession. Private sector employment, by contrast, increased in only five states
]]>Forty-three states and the District of Columbia added jobs in the past 12 months, but the U.S. has 4.8 million fewer jobs that it did in 2008. North Dakota led the pack with a 7.2 percent increase, but the national growth rate was only 1.1 percent. Seven states lost jobs.