Impact of disability payments on labor force

The percentage of the working age-population either working or looking for work is at a 35-year low. Economists have been scrambling to try to explain this trend, and one factor they have focused on is the rise in individuals who have qualified for Social Security disability payments. N.C. State University economist Mike Walden explains what this means.

“Social Security disability payments — that part of the Social Security system — has been around for seven decades. And what happens here is a person who feels as if they are disabled — that is, unable to work — they go through a procedure where they get medical exams, they get qualified, examined, a judge actually has to decide if they can receive payments.

“Now, you’re not going to get rich on that. But for many people who have limited job opportunities, this perhaps may be a good option for them. And then the point here is that we’ve seen a tremendous rise in the number of people both applying for as well as receiving Social Security disability payments.

“Some economists think that that, again, is being used as perhaps a successor to unemployment compensation.  That is, you run out of your unemployment compensation so you try to qualify for Social Security disability. And so therefore it could be a factor in this drop …  in the percentage of the working age population that is actually in the labor force.

“So, we have a recent study that tried to quantify this. And what it found is that the increase in those applying for and receiving Social Security disability in recent years could account — could account — for somewhere between 30 to 60 percent of the reduction in the labor force participation rate and if, however, we did not see that rise in Social Security disability, actually, the reported unemployment rate would be much higher.”