Monday, April 8, 2013

When you pay people with disabiltiies, ... get more disabled people. 

The graph above illustrates the sorry state of the US labor market.  Unemployment is falling only because people are dropping out of the labor force in record numbers.  Some of them are going onto social security disability.  You can see this in the falling labor participation rate (number of people who have jobs or are looking for jobs divided  by the working age population) while the number of working divided by the number who could be working has not recovered from the recessionary lows.

NPR had another story, The Startling Rise of Disability in America, that is making me re-think my opposition to subsidies for public broadcasting.  Here is the essence of the problem:

There's no diagnosis called disability. You don't go to the doctor and the doctor says, "We've run the tests and it looks like you have disability." It's squishy enough that you can end up with one person with high blood pressure who is labeled disabled and another who is not.
As a consequence of the squishy diagnoses, you get moral hazard, i.e., some people on disability don't belong there.  

Interestingly, Great Britain has tried to reduce disability rolls by testing recipients.  Here is what happened:

... in an attempt to make the replacement scheme more rigorous, applicants now undergo the WCA, which can require them to undergo a face-to-face medical assessment and provide a report from their doctor.
But government figures have shown that more than nine out of 10 people who claimed the new sickness benefit have been deemed fit enough to work.
More than a third of the 1.3 million people who applied for Employment and Support Allowance were found to be fully capable of working.

Is it time for a similar test in the US?

Donald Marron tells me that the trust fund for the disability part of Social Security is currently expected to run out of money in 2016. So there may be a budgetary "forcing" event requiring Congress to consider what changes to the program might make sense.

WSJ has a front page article on the growth of Social Security Disability Program.

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