Rise In Disability Rolls Helps Explain An Unemployment Mystery

05/03/2012 01:07 pm ET | Updated May 08, 2012
  • Mark Gongloff Managing Editor, Business and Tech, The Huffington Post

More than 1.6 million Americans have signed up for Social Security disability benefits since the recession, taking themselves out of the work force -- and maybe making the unemployment rate look better than it should.

That's the message of a Bloomberg report on Thursday, which notes that the ranks of workers collecting disability benefits have swollen to 8.7 million in April from 7.1 million in December 2007, when the recession officially began.

Some of those workers are using disability benefits to replace expired unemployment benefits, the Bloomberg story suggests. That means they're officially out of the "labor force," which means they don't get counted when the government calculates unemployment.

Though the labor force has grown slightly since the recession began, the labor-force participation rate -- meaning the percentage of work-age people actually working or looking for work -- has shrunk fairly dramatically, from 66 percent to 63.8 percent, roughly the lowest it has been in nearly 30 years.

That couple of percentage points in decline represents about 5.4 million extra people out of the labor force. If those people were back in the labor force but still not working, then the unemployment rate would be much higher -- roughly 11.3 percent, compared with the 8.2 percent the government reported in March.

That's a big difference. That's the difference between an anemic recovery and a god-awful recovery. It might be the difference between a second term for President Obama and the swearing-in of President Romney. Economists are understandably very concerned about labor-force participation and what will happen to it as the economy recovers. They'll be paying close attention to these numbers when the government releases April employment data on Friday.

So does the rise in disability rolls solve some of the labor-force mystery? Not exactly.

The extra number of workers clambering onto the disability lifeboat since the recession began may account for about a quarter of the drop in the labor force participation rate since the recession began, according to the Bloomberg story, citing research notes by JPMorgan Chase and Morgan Stanley.

But that still leaves millions of people out of the work force for different reasons. A lot are discouraged and have given up hope of finding work, certainly.

But the majority of them, likely, have just decided to retire, many economists think. And given the aging of the Baby Boom demographic, that will likely continue, meaning labor-force participation will continue to be sluggish and the unemployment rate may never fully reflect just how many people are out of work.

What's more, it would be a mistake to think that the recent jump in disability benefits is in any way unusual. Disability claims tend to rise during recessions, and the pace of growth since the latest recession hasn't been any faster than the pace of growth in past recessions.

Though it may disappoint readers who want to use rising disability claims to suggest President Obama has launched a socialist nanny state, disability rolls have in fact been rising pretty much steadily since the Reagan administration, which is another mystery economists have been trying to solve for a long time.

Some blame the rise of women in the labor force in past decades, which created a vast new cohort of workers available to start collecting disability benefits. Some say it's too easy to get disability benefits, saying workers complaining of muscle pains or mental illness can get on the government dole without showing proof they can't work.

Whatever the reason, the rise in disability is not exactly news, and it's definitely not the main reason so many people are sitting out of the labor force.

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