Tuesday, December 17, 2013

Discouraged Workers, not Disabled, Shrinking the Labor Force

Those with disabilities or an aging population isn't the major driver or the reason for the drop in labor force participation rate. It's because, for the past 5 years, the U.S. has had more "non-starters" than "quitters" in the labor force. Discouraged workers (the long-term unemployed, those who can't find jobs), are what is driving the drop the in the labor force participation rate --- not necessarily disabled or old people.

Yet economists with PhDs have been wringing their brains out trying to determine if the long-term unemployment problem is because of cyclical and structural reasons, when most ordinary folks will simply tell you that it's because there aren't enough jobs.

Over the last 5 years we've had an additional 6.8 million retired and disabled persons and another 15.4 million high school graduates --- a difference of 8.6 million that would normally be in the labor force.

8.6 million is about the same number of jobs lost during the recession and about the same number of jobs created after the recession. Over the last 5 years 1.5 million more people were awarded a disability claim, so how can those who on went on disability be the cause for a smaller labor force or a declining participation rate?

Isn't it really mostly "discouraged workers" who are driving these numbers, because too many people can't find jobs, but yet, they are no longer counted as unemployed, and not included as part of the labor force?

In a recent article at the Economic Populist titled Employment Stats Misleading, Paul Craig Roberts (former Assistant Secretary of the Treasury under Ronald Reagan) notes that the unemployment rate can decline simply because the definition of the work force excludes "discouraged workers" who are no longer counted as part of the labor force after one year. He agreed with Shadowstats.com, that the REAL unemployment rate was closer to 23.2%

John Williams is a statistician and the author of the website Shadowstats.com. He is an economic consultant with an economics BA and an MBA from Dartmouth College. He says that under President Lyndon B. Johnson, people who stopped looking for work for more than a year were no longer considered part of the counted labor force. That change dramatically decreased U.S. government reported jobless numbers, as does not count part-time workers who are looking for full-time employment.

In November 2003, when George W. Bush was President, Austan Goolsbee (President Obama's former chair of the Council of Economic Advisers) wrote an op-ed in the New York Times criticizing the government's reported job numbers, but also attributed a lower unemployment rate to those going on Social Security disability:

"The unemployment rate has been low only because government programs, especially Social Security disability, have effectively been buying people off the unemployment rolls and reclassifying them as 'not in the labor force'. In other words, the government has cooked the books."

Goolsbee had said that starting around 1990, looser standards to qualify for disability started moving people "in record numbers" into the disability system (people who would normally be counted as unemployed), and in doing so, also lowered the unemployment rate (just as long-term unemployed "discouraged workers" are also no longer counted in the labor force, and therefore, lowers the unemployment rate.)

Last year, when reporting on the jobs numbers, TIME references a Congressional Budget Office report and says: "Since 2007 the number of people receiving benefits from the disability program has increased by 23% to 11 million."

But what the CBO report actually says is:

"In 2011, the DI program provided benefits to 8.3 million disabled workers, nearly sixfold the 1.4 million disabled workers who received benefits in 1970. The growth in the program can be attributed to changes in multiple factors, including demographics."

Note: The CBO said it was 8.3 million, not 11 million on disability as TIME had reported. TIME was using skewed information from the conservative think tank, the Heritage Foundation. According to data from the Social Security Administration, from December 2007 to October 2012 (when the TIME article was published), the number of people on disability increased from 7.1 million to 8.5 million --- up 16.7%, not 23% as reported by TIME.

TIME goes on to say: "While this is a large increase, it is really just an extension of a trend that has been going on for decades. According to a recent Congressional Budget Office report, disability rolls increased six times between 1970 and 2011, far outstripping population growth during the same period."

A little data from that period of time:

From 1970 to 2011 the number of people on disability grew from 1.5 million to 8.6 million
From 1970 to 2011 the number of people who retired grew from 13.4 million to 35.8 million
From 1970 to 2011 the population grew from 205 million to over 310 million
From 1970 to 2011 the Employment-Population Ratio moved from 56.7 to 58.6
From 1970 to 2011 the Labor Force Participation Rate moved from 60.4% to 64%

And currently (as of December 2013) we have 8.9 million on disability, not 14 million as the NPR has continually misreported here, here, here and here.

Austan Goolsbee also said that from 1999 to 2003, applications for disability payments rose more than 50 percent and the number of people enrolled has grown by one million. Again, according to data from the Social Security Administration, during that time period SSDI applications rose from 1.2 million to 1.9 million (not a rise of 50% as Goolsbee claimed). And the net rise of people receiving a monthly SSDI benefit grew by 1,175,354 (from 4,698,319 to 5,873,673). [See this post about rising SSDI "claims" but declining "awards" --- and this post as well.]

So the declining number of people in the labor force just can't be attributed to people going on disability, nor can retirees be blamed for a declining labor participation rate. According to data from the Social Security Administration, as of January 2009 when Obama first took office, we had a total of 39.8 million retired and disabled workers receiving a monthly Social Security benefit (32.4 million retired and 7.4 million disabled).

Almost 5 years later (as of November 2013) we had a total of 46.8 million retired and disabled workers (37.8 million retired and 8.9 million disabled) for a net gain of 6.8 million retired and disabled workers.

During that same period of time we also had an estimated 15.4 million high school graduates --- a difference of 8.6 million who might otherwise be in the labor force. In a report by Rutgers they noted that 44% of high school students were unemployed. In other words, we've had more "non-starters" (new entrants form high school into the labor force) than we had "quitters" (those who left the labor force to retire or go on disability.)

And in the years ahead, the Fed anticipates a much further drop in the labor force participation rate.

And besides the disabled, Goolsbee also said that during the Reagan administration, people serving in the military were also reclassified from ''not in the labor force'' to ''employed'' in order to reduce the unemployment rate.

But Goolsbee also admitted that, under-reporting the unemployment numbers has served the interests of BOTH political parties (when the interests of the unemployed weren't being served.)

* The Labor Department determines the unemployment rate by surveying 60,000 households and asking respondents a series of questions to determine their employment status. For 5 years I have attempted to contact someone who actually took this survey --- 60,000 households a month X 12 months X 5 years = 3,600,000 people --- but I can't find 1 person.


  1. Fed Expects Further Decline in Labor Force


  2. UPDATE: Dec. 18, 2013 - - - 12:45 PM Pacific Standard Time - Las Vegas

    In the last few minutes (while Ben Bernanke was talking at a news conference on CNBC) the stock market took off and went viral --- (currently up 227 points to 16,102 --- on the way to another record high --- but how can that be with a tapering of QE? Bernanke also acknowledged that there is still a problem with the long-term unemployed and a falling labor participation rate --- and he also said it that it was demographic and structural --- and because of "discouraged workers" (not because of a temporary business trend) So this unemployment thing might be a permanent situation. I guess the more people out of work (and the longer) the better the stock market.