Paid To Be 'Stuck'?

Words matter. So when a recent article in the Wall Street Journal Online proclaims “Workers Stuck in Disability Stunt Economic Recovery,” it sets off the incentive alarms. What do you mean by “stuck in disability” and what role do incentives play in that “stuck”-ness? I mean, if you choose to stay in a sticky situation, are you really stuck?

The quick background:
A very large number of people were disabled by the recent recession (i.e., the number of people who were placed on federal disability jumped dramatically, even by historical standards). The preponderance of this increase in “disability” came from people who were no more disabled than they had been previously. Rather, they are people who lost jobs that they were previously able to endure but jobs they were not able to replace. In short, the new “disability” was really the inability to find new jobs given whatever physical limitations individuals claimed to have, not the physical limitations themselves. This was compounded by States that were able to reduce their welfare and Medicaid costs by shifting people to Social Security disability (SSDI) and Medicare.

Now people are not getting off of disability as rapidly as they have after recessions past. While the official unemployment has been falling of late, it has more reflected a decrease in the labor participation rate than an increase in the number of jobs. The percentage of working-age adults who are in the labor market has decreased, and almost half of that decrease is a result of people moving into “disability” status. Fewer people in the labor market not only makes unemployment look better than it really is, but it also puts a drag on the economy as fewer workers are available to take jobs (supply of labor decreases) and make “stuff”. And “stuff” is what makes the market economy go ’round. If that wasn’t bad enough news, the high disability rate is now predicted to bankrupt the current SSDI system in the next three years.

So, are people really “stuck in disability”? Continue reading “Paid To Be 'Stuck'?”