Earlier this month the economist Edward Lazear had an op-ed column in the Wall Street Journal “The Hidden Jobless Disaster”, pointing out that, even though the unemployment rate has been dropping for the past four years, the employment-to-population ratio has stayed stuck at 58.5%. This low labor participation rate means that many workers have dropped out of the labor force and stopped looking for work. In fact the disability rolls have grown by 13% since 2009 and the number of people receiving food stamps has grown by 39%. These disincentives help to explain why the proportion of long-term unemployed is still so very high at 37%.
The WSJ reported in April, “Workers Stuck in Disability Stunt Economic Recovery”, that the federal disability rolls have jumped from 7.1 million in December 2007, when the recession started, to 8.9 million today, which is 5.4% of the civilian workforce. This exodus to disability costs 0.6% of GDP, a sizable chunk when GDP is only growing at an annual rate of about 2%. Furthermore only 0.5% of federal disability recipients return to work in a given year compared to 20% for private, employer sponsored, disability recipients.
Two conclusions can be drawn from this data. First of all, the federal government should be much stricter in establishing and enforcing work requirements for all public welfare recipients, including those on disability. This should be noncontroversial but it won’t happen unless Congress and the President take the initiative and make it happen.
But even more important, our national leaders need to get far more serious about boosting the economy to get many more millions of the unemployed and underemployed back to work. Fundamental tax reform would help the most but targeted deregulation and expanded foreign trade would also help a lot. The Republicans have the strongest, free market, argument on this basic and high priority issue and they should hammer away at any Democrats, including the President, who are dragging their heels on it!