Tuesday, October 22, 2013

Why are young people leaving the workforce?

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.


  1. Pretty frightening that this is occurring. It seems as if a lot of people are missing out on the confidence and pride that comes with doing your job, and doing it well. Of course, people will follow the money (incentives), but one thing that people are missing out on is that "good feeling" that comes with making contributions to the workforce.

    Something else that I found extremely alarming was a quote I heard yesterday from a top employee at Google. Now, this employee is one of those IQ 170 guys that's in the 99.9999999 percentile of genius. He predicts that by 2030, there will be 2 billion less jobs than there are now! 2 BILLION! Not only will there be population growth, but now there will be less jobs. His reasoning was that technology is improving so dramatically that there will be less of a need for people to work.

    After today's lesson, I'm curious to see the dire effects that a loss of 2 billion jobs would have on the "Supply and Demand" curve. Just like many of you are, I am all for technological advancement, but we need to be sure that we are increasing the demand for jobs at the same time.

  2. I saw in 60 minutes a few weeks ago a Lawyer here in Kentucky where people can go and get disability for sure becasue they are working together with a doctors office!!!!!. 30 cases they investigated, 30 cases with disability that was granted and all with the same doctors office. When it comes to immigration, the US does a great Job at screening people ( I'm a US citizen now but just became a US Citizen 2 years ago so I can testify about the process). If the same effort is employed for the Welfare and the Disability, and many other agencies that grant these benefits to people, maybe things could change as stated in his article. Just telling by experience.

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