Decreasing Labor Force & Increasing Disability Benefit Payments: Correlation?

“Jobs are down!”; “Benefit claims are up!” Alarmists can be heard shrieking and freaking- claiming this is sure evidence that lazy people are fleeing the workforce in order to sit on their butts collecting benefits! – But are they really?

A number of pundits have claimed a direct correlation between the recent upward trend in American’s Social Security Disability Insurance (SSDI) enrollment and the downturn in the number of people participating in the labor force. For example, according to the Wall Street Journal, the Chief US economist for J.P. Morgan, Michael Feroli, estimated that a quarter of all the people leaving the labor force are enrolling in SSDI. (The Wall Street Journal, 4/10/2013), Adding to the speculation, Fox & Friends commentators claimed the poor numbers shown in a recent jobs report were due to workers choosing to sit on the couch collecting benefits instead of going out to find a job and participating in the labor force. (http://mediamatters.org/research/2013/06/07/fox-rehashes-myth-that-unemployment-and-disabil/194385.)

SSDI Benefits Are Not Causing Declining Labor Numbers

It is true the two trends coincide. Since 2009, about 3 million US workers have left the labor force. During the same time period, SSDI has seen unexpectedly high enrollment. But can the SSDI program really be blamed for pulling people out of the labor force? Despite the claims of the pundits, there’s no real evidence that people are choosing to collect SSDI benefits rather than go out to work.

Harold Pollack, an expert on disability policy at the University of Chicago's School of Social Service Administration, explains that if SSDI was truly pulling people out of the workforce, employment rates for people who applied for but were denied SSDI would be high. Statistics, however, show they’re quite low; below 50%. 

Pollack also points out that the benefits people on SSDI receive add up to only about $13,000 per year (plus health care)- which isn’t an amount that an able worker would likely find appealing. (The Washington Post, 3/28/13).  It’s more likely that labor force participation has seen a downward trend, and the SSDI program an upward one, due to simple demographic changes.

Demographic Shifts Can Account for SSDI Growth

The fact is, our population is getting older. As people age, disabilities are more common. This is especially true for people working in manual labor. These folks are more likely to get injured and disabled, and less likely to be able to continue performing the physically demanding jobs they were previously qualified for.

Another factor at play is the government’s increase in the qualifying age for collecting Social Security. People who are no longer able to work and might previously have collected Social Security now must rely on the SSDI program. In fact, about five percent of the current SSDI recipients would be on Social Security prior to the qualifying age increase.

Another demographic shift is that more women are in the workforce than in years’ past. Since the 1980’s many more women have qualified for SSDI benefits. This is solely accountable to the increased number of women in the workplace.

Blame the Boomers for the Shrinking Labor Force

Many economists agree that the depletion of the labor force is also due to a demographic shift- namely, baby boomers retiring. (The Wall Street Journal, 4/29/2013).This ageing out of a huge population segment has been anticipated in economic models for years, and naturally means fewer people are available to participate in the workforce.

So, the truth is that much of the recent labor force shrinkage probably has nothing to do with SSDI increases. Actually, it might not even have much to do with the state of the economy. The Federal Reserve Bank of Chicago expects that even if the economy speeds up, demographic shifts will cause the labor force to decrease until at least 2020. (The Washington Post, 5/4/12). So, don’t blame the SSDI program for fewer workers—blame the boomers.