Is disability the new unemployment?

Did you hear the good news? New jobless claims are falling, and they're now hovering at a four-year low! That's excellent news for the economy, right? Maybe... maybe not. As has been reported in several places recently, the drop in people filing for unemployment has been accompanied by a sharp rise in those filing for (and receiving) disability.

More than 8.5 million workers are now collecting disability insurance, in other words almost 6% of the labor force is officially disabled. Perhaps not surprisingly, disability applications shot up just as unemployment benefits started to exhaust... 

Since 1995 the number of disabled workers has doubled and expenditures have increased even faster than disabled workers, tripling since 1995. The increase in workers receiving disability insurance has come at the same time as the US working age population has become healthier. A large fraction of the increase in disability has come from increases in hard-to-verify back pain and mental problems... 

After the 2001 recession, disability applications also shot up and they never fell back to their old levels. We may be reaching a new, permanently higher, plateau. 

Disabled workers do not count as unemployed, they have been bought out of the labor force.

Ugh. This is a terrible development--as Karl Denninger described it, this is in many situations a case of "I lost my job, now I'm crazy!"

I've said here before that the national unemployment rate (as currently calculated) is an incredibly noisy and easily-gamed statistic, as are jobless claims. When considering the overall health of our economy--especially in the face of a rapidly aging population with monstrous entitlement benefits--the most important statistic to track is the employment rate of the population, which of course continues to plummet even amid an "improving" economy.

Having more people on permanent or semi-permanent disability only adds weakness to the overall fiscal condition of our country, as people who should be wage-earners (and taxpayers) are instead transformed into tax recipients. With our country already gaining tax recipients by the day as the Baby Boomers retire in droves, who is going to be left to pay all of these bills? Warren Buffett? Good luck with that.

The massive impending liabilities of Medicare and Social Security require that our overall labor force be growing, not stagnating or shrinking. That absolutely is not happening, regardless of underlying improvement in the official unemployment rate. We can't hide these people on the disability rolls forever--sooner or later, we need to find ways for them to contribute, rather than add to our already bloated federal dole. Any ideas?

[Marginal Revolution]
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