America's unemployment rate has come down significantly from its peak of 10 percent in late 2009. That may seem to suggest a steady improvement in the employment picture, but the impression is misleading.
We recently pointed out that workers age 25 to 54 are experiencing a jobs depression that has gotten slightly worse since the end of the Great Recession of 2007-2009, with nearly all job growth since the downturn's end coming among older Americans. But also statistically concealing the dire reality are labor force dropouts. A smaller percentage of Americans now work or seek work than at any point since the Carter era. Jim Pethokoukis, of the American Enterprise Institute, has calculated that if labor force participation had not declined so much since Obama took office, the unemployment rate for January would have been 10.8 percent.
What happens to the workers who drop out of the labor force? Some retire, some become full-time parents, some go on welfare. But here's an important answer that is often overlooked: In 2011, on average, one net person has been added to Social Security's Disability Insurance rolls (and 3.3 to its retirement program) for every five net new jobs created. Since 1970, the number receiving DI has grown sixfold (from 1.4 million to 8.8 million), and the program expenses have grown tenfold, which is unsustainable. The federal government now spends more on disability than food stamps and welfare combined. In 2009, DI began paying out more in benefits than it took in from payroll taxes. By 2016, it is set to run out of money.
Two factors are driving the program's explosive growth: first, newly liberalized eligibility standards. When President Reagan instituted a program of "continuing disability reviews" at the height of the 1981 recession, about 400,000 people lost benefits. Democrats in Congress responded by passing new standards that made it easier to qualify for DI initially and next to impossible to lose benefits. As NPR's Chana Joffe-Walt pointed out in an excellent recent piece on the topic, heart disease was the top cause of DI awards in 1961. Today, with the new eligibility standards, back pain and mental illness top the list. As a result, the share of all adults receiving DI benefits doubled from 2.3 percent in 1989 to 4.6 percent in 2009.
The second reason for the exploding disability rolls and continued record-setting is the continued weakness of President Obama's economic recovery. It has been thoroughly established that DI applications correlate not with worker health but with worker employment prospects. One classic study shows that when coal prices fall, the number of DI beneficiaries skyrockets in Appalachia. Falling coal prices don't cause back pain, but unemployment does cause more DI applications. And the applications have not slowed down at all since the "recovery" began -- at 2.8 million, the number in 2012 was almost identical to the number from 2009, and double the number from 2000.
Once a worker qualifies, he or she possesses an asset producing a guaranteed income of $13,000 a year for life, plus free health care through the Medicare program. (Compare that with the average minimum-wage job, which offers only $15,000 a year without health care.) The benefits are far from extravagant, but they can offer older workers a bridge to the Social Security retirement age, and an early start on Medicare. Fewer than 1 percent of workers who go on DI ever leave the rolls. Don't blame the applicants or the beneficiaries -- they are just responding to the incentives the government creates through the DI program. The only way someone can lose DI is by working SEmD which is one reason most never try. Instead, for many who were perfectly able to work a few months ago, DI has become a voluntary life sentence to idle poverty.