Government disability aid programs might have reduced labor force participation

See Supply or Demand? What’s the Story behind Men Leaving the Labor Force? By Michael Farren and Scott Winship of Mercatus.

"There has been enormous change across American society over the past half century. The Civil Rights Act was enacted in 1964, the Americans with Disabilities Act was enacted in 1990, and the Supreme Court decision in Obergefell v. Hodges in 2015 upheld same-sex couples’ right to marry. We’ve also seen women’s participation in the workforce steadily increase, almost doubling since the late 1940s. Similarly, the percentage of immigrants in the US population has more than doubled since 1970 (although it’s still below the peak seen at the turn of the 20th century). While all this has been happening, increasing automation and trade have shifted new job growth away from manufacturing and toward the personal and professional services industries. But there’s another, less noticed social change that is now coming to light: the number of men who have the left the workforce altogether. Over the past 50 years, the percentage of prime-age men who are “inactive”—neither working nor looking for work—has more than tripled. Economists generally expect men between the ages of 25 and 54—those who are in the prime of their working lives—to have the highest rates of employment. But as the first figure shows, seven million prime-age men—11.5 percent of the population—are staying away from the labor market.

New research published by the Mercatus Center at George Mason University digs into the question of how labor market inactivity has risen over time and which men are inactive. It finds that, contrary to claims made in 2016 by the Obama administration, the rise is not the result of a lack of available jobs or unreasonably low wages. Furthermore, the true unemployment rate is not actually 42 percent (a number that counts retirees and people who are too disabled to work as unemployed), as President Trump suggested on the campaign trail. In fact, the second figure below illustrates government survey findings that only 14 percent of inactive prime-age men say that they want a job. Instead, the problem seems to be one of supply: the men who are inactive simply aren’t motivated to seek employment.

The easiest explanation for this would be that falling wages are making work less attractive, but the problem does not seem to be related to compensation. Over the past 50 years, the inflation-adjusted median pay for all men has risen by 23 percent (31 percent when accounting for improving employment benefits) while the pay of lesser-skilled men—those at the 20th percentile of income—has risen by 10 percent. Falling labor force participation would suggest that inflation-adjusted wages should be decreasing, not increasing. An alternate explanation would be that the payoff for not working has increased. Here we do find evidence that helps explain this phenomenon. The third figure shows that over a third of the growth in prime-age men’s inactivity is attributable to three factors: early retirement (9 percent), staying home to take care of family (13 percent), and school enrollment (16 percent). Declining workforce participation for these reasons probably doesn’t reflect worrisome social trends. Furthermore, the inability to find work only accounts for 9 percent of the growth in inactivity. The lion’s share of increasing inactivity—47 percent—comes from prime-age men reporting they are disabled or ill. In fact, four million inactive prime-age men say they are unable to work because of a disability or illness.This last development seems rather surprising in light of generally improving health over time. Workplace injury rates have declined and nonelderly men’s rates of head, neck, and back pain have remained constant. The quality of nutrition hasn’t changed, while exercise has increased. And while obesity has become more prevalent, it has not meaningfully contributed to rising disability program participation. Nor has the recent uptick in mortality among middle-aged white people undone the generally lower mortality rate among prime-age men in this group compared to previous generations. Furthermore, prime-age men’s work absenteeism as a result of health problems fell by more than 50 percent between 1962 and 2014 (with the decline balanced by a nearly equivalent increase in men who indicated that vacation or personal days were their reason for absence). Lastly, the requirements in the Americans with Disabilities Act suggest that for the past 25 years employers should have been more likely to reconfigure their workplaces to accommodate people who are disabled.

Recent Mercatus research suggests that increases in the number of prime-age men reporting that disability or illness renders them unable to work may be connected to the rising accessibility and generosity of government aid programs. 1984 reforms to the Social Security Disability Insurance (SSDI) program allowed for more mental health screening and thereby expanded eligibility for SSDI participation. Greater numbers of SSDI beneficiaries have also qualified on the basis of muscle and joint pain. Although the corresponding increases in SSDI participation may indicate that people with disabilities are getting better care, mental health issues and muscle and joint pain are difficult for medical practitioners to accurately assess. And during the 1980s, the authority of the SSDI claimant’s personal physician also gained greater weight in appeal hearings. People who are initially denied disability benefits now tend to gain them upon appeal. Perhaps not coincidentally, during the same time period that disability- and illness-related inactivity rose by 47 percent, participation in state and federal disability aid programs increased by 40 percent.

Furthermore, a disproportionate number of inactive men—76 percent—live in households that receive support from government aid programs. The number is higher—around 90 percent—for those who report they are disabled or ill. This suggests that even if an inactive man does not receive government assistance directly, he may benefit from being part of a household that receives some other form of benefits, reducing the necessity to rejoin the workforce.

The results from this research suggest that we should reexamine disability aid programs to ensure that the programs are not unintentionally creating reasons to stay on the sidelines for people who could otherwise rejoin the workforce. The rise in disability program participation when health has generally been improving should be a cause for concern. Programs like the SSDI are important and the increase in their usage by people who truly need the social safety net is appropriate. But we should reevaluate the design of these programs to ensure they are successful in their core mission while not contributing to unnecessary joblessness."