Making Disability Work
I will begin a new job for Citigroup in January, so this is my last article as a contributing columnist for The Times. I hope to see you again from time to time on the Op-Ed page.
One of the gravest dangers posed by the weak economy is that the unemployed will become discouraged and give up looking for work, perhaps permanently as their skills atrophy. This would be harmful not only to the workers and their families, but also to the economy as a whole, as those people would no longer contribute to economic growth. The longer the labor market remains sluggish, the more pronounced this risk becomes.
Unfortunately, at this point more than six million people have been unemployed for six months or longer. More than one million have already given up looking for work because they believe no job is available. And a drastic rise in applications for disability insurance suggests we may be headed for more long-lasting trouble. The number of disability applications has reached more than 750,000 a quarter, according to the Social Security Administration, an increase of more than 50 percent from four years ago.
The disability insurance program provides crucial support for people who can no longer work because of a disability. But once someone begins receiving benefits, the likelihood that he will re-enter the work force is almost nonexistent; recipients become permanently dependent on the program.
The result is not only lost economic productivity, but also a fiscal burden for the federal government: disability benefits now cost more than $120 billion a year, and Medicare benefits for those on disability add $70 billion.
The spike in disability insurance applications (and awards) does not reflect a less healthy population. The fraction of working-age adults who report a disability, about one in 10, has remained roughly constant for the past 20 years. (Indeed, it would be surprising if the number of workers with disabilities had risen by 50 percent over the past four years.) Rather, the weak labor market has driven more people to apply for disability benefits that they qualify for but wouldn’t need if they could find work.
When Congress created the disability insurance program in 1956, it required that recipients be unable to “engage in substantial gainful activity in the U.S. economy.” In other words, they had to be unable to work. That was sensible at the time, when more jobs involved physical labor and technologies to assist people with disabilities were not widely available.
Today, however, many people with disabilities are able to engage in some form of work — even if they can’t admit that and still keep their insurance benefits. Cutting off access to the workplace in this way is both unfortunate and unnecessary — and reinforces the threat that the current downturn could cause a long-term reduction in the share of people who work.
So what should be done?
First, macroeconomic policy. We need more stimulus immediately, and more deficit reduction enacted now to take effect in two or three years. The plan just proposed by the White House in a compromise with Congressional Republicans is encouraging in that it includes a new payroll tax holiday, a helpful stimulus. It does not reduce future deficits, but at least it avoids making the Bush tax cuts permanent, reserving the flexibility to address medium-term deficits down the road.
Even if this plan goes ahead, however, the unemployment rate is likely to remain high for some time. For it to fall by even one percentage point (from 9.5 percent to 8.5 percent) the economy needs to grow by about 4.5 percent a year.
Second, unemployment insurance should be extended, as President Obama’s compromise plan also would do. Unemployment benefits are a form of stimulus: they spur spending and thereby help keep the economy afloat. Just as important, unemployment benefits keep many people from falling back on disability insurance — and unlike disability insurance, which effectively prohibits beneficiaries from seeking work, unemployment insurance requires recipients to keep looking for a job and thus remain connected to the work force.
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Peter Orszag, the director of the White House Office of Management and Budget from 2009 to July 2010, is a distinguished visiting fellow at the Council on Foreign Relations.
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