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The Washington Post had an interesting article on the sharp rise in disability rates in the downturn. It would have been helpful to include some additional information.
One important reason for the rise in disability not connected to the recession, is the increase in the normal retirement age. This was increased from 65 for people who turned 62 before 2002, to 66 for people who turned 62 after 2008. The rise in the normal retirement age means that people on disability can collect benefits for an extra year before they have to turn to their Social Security retirement benefits, which will typically be less. The increase in the retirement age would have led to a substantial rise in disability rates even if there had been no underlying change in the incidence of disability.
A second point that would have been worth noting is that it is not easy to get disability. More than 60 percent of applicants are originally ruled ineligible. While many successfully appeal their rejection, the final approval rate is still below 50 percent. It is reasonable to believe that the vast majority of frivolous claims are rejected.
At one point the article discusses the notion put forward by economists David Autor and Mark Duggan that workers with little education may have substantial incentives to turn to disability:
“Benefits are hardly generous. They average $1,130 a month, and recipients are eligible for Medicare after two years. But with workers without a high school diploma earning a median wage of $471 per week, disability benefits are increasingly attractive for the large share of American workers who have seen both their pay and job options constricted.
“In 2004, nearly one in five male high school dropouts between ages 55 and 64 were in the disability program, according to a paper by economists David Autor and Mark Duggan. That rate was more than double that of high school graduates of the same age in the program and more than five times higher than the 3.7 percent of college graduates of that age who collect disability.”
While the difference between median earnings and the average disability payment is considerably lower for less-educated workers there are two other important factors that affect disability rates. First, less educated workers are far more likely to have worked at physically demanding jobs that could result in a disability. For example, someone who works as a mover is more likely to develop back problems than an office worker with a desk job.
The other difference is that the jobs that are available to less educated workers are likely to be more physically demanding. A back problem that may be an inconvenience for a desk worker may make it impossible for someone to find work as a custodian or some other low-paying job. These differences undoubtedly explain much of the difference in disability rates by education.
The Washington Post had an interesting article on the sharp rise in disability rates in the downturn. It would have been helpful to include some additional information.
One important reason for the rise in disability not connected to the recession, is the increase in the normal retirement age. This was increased from 65 for people who turned 62 before 2002, to 66 for people who turned 62 after 2008. The rise in the normal retirement age means that people on disability can collect benefits for an extra year before they have to turn to their Social Security retirement benefits, which will typically be less. The increase in the retirement age would have led to a substantial rise in disability rates even if there had been no underlying change in the incidence of disability.
A second point that would have been worth noting is that it is not easy to get disability. More than 60 percent of applicants are originally ruled ineligible. While many successfully appeal their rejection, the final approval rate is still below 50 percent. It is reasonable to believe that the vast majority of frivolous claims are rejected.
At one point the article discusses the notion put forward by economists David Autor and Mark Duggan that workers with little education may have substantial incentives to turn to disability:
“Benefits are hardly generous. They average $1,130 a month, and recipients are eligible for Medicare after two years. But with workers without a high school diploma earning a median wage of $471 per week, disability benefits are increasingly attractive for the large share of American workers who have seen both their pay and job options constricted.
“In 2004, nearly one in five male high school dropouts between ages 55 and 64 were in the disability program, according to a paper by economists David Autor and Mark Duggan. That rate was more than double that of high school graduates of the same age in the program and more than five times higher than the 3.7 percent of college graduates of that age who collect disability.”
While the difference between median earnings and the average disability payment is considerably lower for less-educated workers there are two other important factors that affect disability rates. First, less educated workers are far more likely to have worked at physically demanding jobs that could result in a disability. For example, someone who works as a mover is more likely to develop back problems than an office worker with a desk job.
The other difference is that the jobs that are available to less educated workers are likely to be more physically demanding. A back problem that may be an inconvenience for a desk worker may make it impossible for someone to find work as a custodian or some other low-paying job. These differences undoubtedly explain much of the difference in disability rates by education.
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Laura Tyson used her NYT column to warn about increasing wage inequality as more middle class jobs are eliminated. The centerpiece in this argument is that most of the jobs being created in the recovery are in low-paying sectors of the economy. In effect retail and restaurant jobs are replacing manufacturing and construction jobs.
This is a serious concern, since obviously we care not just that workers have jobs, but also that the jobs pay enough to support them and their families. However, the story of job quality and the story of too few jobs are arguably the same story. There are always employers offering bad jobs, but workers don’t take them in a good economy. In a bad economy they have no choice.
The chart below shows the relationship by state between the unemployment rate and the increase in the share of restaurant jobs. The upward slope (which is significant at a 1.0 percent level), shows that a higher rate of unemployment is associated with proportionately more growth in restaurant work. (Arin Dube has a related post showing that an increasing number of college educated workers are being employed in fast food restaurants.)
Click for a more detailed version of the graph.
The point here is that the shortage of jobs and the poor quality of the jobs that are being created are not different stories, they are the same story. The fact that we see the highest rise in the share of restaurant employment in states with the highest unemployment rates indicates that these low-paying jobs are associated with weak growth rather than being the direction of the future economy. If we got more job growth, then the share of low-paying jobs would surely diminish.
As another angle on this, even the wages in low-paying jobs would likely rise if we again got the economy close to full employment levels of output. This was certainly the case in the late 1990s when even workers at the bottom of the pay ladder were seeing substantial gains in wages.
This is not to say that we don’t have structural problems in the economy. An out of control financial sector continues to siphon off hundreds of billions of dollars a year from the productive economy. Our health care system is incredibly wasteful, causing us to pay more than twice as much per person as the average for other wealthy countries. However, the bad jobs story is largely the same thing as the too few jobs story. If we can just get the forbidden topics of stimulus or a lower valued dollar back on the agenda, we could address both.
Laura Tyson used her NYT column to warn about increasing wage inequality as more middle class jobs are eliminated. The centerpiece in this argument is that most of the jobs being created in the recovery are in low-paying sectors of the economy. In effect retail and restaurant jobs are replacing manufacturing and construction jobs.
This is a serious concern, since obviously we care not just that workers have jobs, but also that the jobs pay enough to support them and their families. However, the story of job quality and the story of too few jobs are arguably the same story. There are always employers offering bad jobs, but workers don’t take them in a good economy. In a bad economy they have no choice.
The chart below shows the relationship by state between the unemployment rate and the increase in the share of restaurant jobs. The upward slope (which is significant at a 1.0 percent level), shows that a higher rate of unemployment is associated with proportionately more growth in restaurant work. (Arin Dube has a related post showing that an increasing number of college educated workers are being employed in fast food restaurants.)
Click for a more detailed version of the graph.
The point here is that the shortage of jobs and the poor quality of the jobs that are being created are not different stories, they are the same story. The fact that we see the highest rise in the share of restaurant employment in states with the highest unemployment rates indicates that these low-paying jobs are associated with weak growth rather than being the direction of the future economy. If we got more job growth, then the share of low-paying jobs would surely diminish.
As another angle on this, even the wages in low-paying jobs would likely rise if we again got the economy close to full employment levels of output. This was certainly the case in the late 1990s when even workers at the bottom of the pay ladder were seeing substantial gains in wages.
This is not to say that we don’t have structural problems in the economy. An out of control financial sector continues to siphon off hundreds of billions of dollars a year from the productive economy. Our health care system is incredibly wasteful, causing us to pay more than twice as much per person as the average for other wealthy countries. However, the bad jobs story is largely the same thing as the too few jobs story. If we can just get the forbidden topics of stimulus or a lower valued dollar back on the agenda, we could address both.
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When it comes to issues of an aging population the Washington Post gets very arithmetic challenged. An article discussing the plight of the rural elderly noted that many can’t count on assistance from either the government or their children. It tells readers:
“The rapid aging of China’s society is one of its most profound economic challenges. By 2053, the number of senior citizens is expected to grow to 487 million, or 35 percent of the population, compared with just over 12 percent now, according to the China National Committee on Aging. There will be more retired Chinese people than the entire U.S. population by that date.
“But even before then, the country faces the prospect of growing old before it grows rich. Chinese citizens who have grown up under the one-child policy could end up caring for two parents and four grandparents each as they enter late middle age, a potentially crippling economic burden.”
These assertions are wrong on their face. According to the International Monetary Fund, China’s per capita income has increased by 4000 percent since 1980. This means that it easily has the ability to support both its retirees and its working population at standards of livings that are far higher than they would have seen in the recent past. The impact of this extraordinary growth rate dwarfs the demographics associated with the one-child policy.
If there are problems supporting China’s elderly then it is due to too much money going to the wealthy. The focus on the demographics is mistaken and misleading.
When it comes to issues of an aging population the Washington Post gets very arithmetic challenged. An article discussing the plight of the rural elderly noted that many can’t count on assistance from either the government or their children. It tells readers:
“The rapid aging of China’s society is one of its most profound economic challenges. By 2053, the number of senior citizens is expected to grow to 487 million, or 35 percent of the population, compared with just over 12 percent now, according to the China National Committee on Aging. There will be more retired Chinese people than the entire U.S. population by that date.
“But even before then, the country faces the prospect of growing old before it grows rich. Chinese citizens who have grown up under the one-child policy could end up caring for two parents and four grandparents each as they enter late middle age, a potentially crippling economic burden.”
These assertions are wrong on their face. According to the International Monetary Fund, China’s per capita income has increased by 4000 percent since 1980. This means that it easily has the ability to support both its retirees and its working population at standards of livings that are far higher than they would have seen in the recent past. The impact of this extraordinary growth rate dwarfs the demographics associated with the one-child policy.
If there are problems supporting China’s elderly then it is due to too much money going to the wealthy. The focus on the demographics is mistaken and misleading.
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The Hill sees the onset of fall as providing support for Republican efforts to cut the budget. Okay, they didn’t quite say this, but what they did say didn’t make much more sense. It told readers:
“Republicans argue that their cost-cutting initiatives will foster the economic growth needed to reduce the stubbornly high poverty rate. Their efforts were boosted by a Congressional Budget Office report on Tuesday that shows the national debt increasing to from 73 percent to 100 percent of the economy over the next 25 years.”
The Hill sees the onset of fall as providing support for Republican efforts to cut the budget. Okay, they didn’t quite say this, but what they did say didn’t make much more sense. It told readers:
“Republicans argue that their cost-cutting initiatives will foster the economic growth needed to reduce the stubbornly high poverty rate. Their efforts were boosted by a Congressional Budget Office report on Tuesday that shows the national debt increasing to from 73 percent to 100 percent of the economy over the next 25 years.”
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This point would have been worth including in a NYT piece that reported on how the state of Florida appeared to be undercutting provisions of the Affordable Care Act (ACA) that were designed to curtail abuses by insurers. The ACA requires insurers to make benefit payments that are at least equal to 80 percent of its premiums, unless they have been given an explicit exemption from this provision.
This provision is enforced by the Department of Health and Human Services. It should limit the extent of insurer abuses even if a state is determined to look the other way.
Thanks to Robert Salzberg for calling this to my attention.
This point would have been worth including in a NYT piece that reported on how the state of Florida appeared to be undercutting provisions of the Affordable Care Act (ACA) that were designed to curtail abuses by insurers. The ACA requires insurers to make benefit payments that are at least equal to 80 percent of its premiums, unless they have been given an explicit exemption from this provision.
This provision is enforced by the Department of Health and Human Services. It should limit the extent of insurer abuses even if a state is determined to look the other way.
Thanks to Robert Salzberg for calling this to my attention.
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This is only a very slight caricature of Jonathan Weisman’s “Congressional Memo” in today’s NYT. He tells readers:
“For three years, Congressional leaders have relied on tactical maneuvers, sleights of hand and sheer gimmickry to move the nation from one fiscal crisis to the next — with little strategy to deal with the actual problems at hand. Medicare and Social Security continue to swell with an aging population. Health care costs grow. A burdensome tax code remains unchanged, and economic revival is shadowed by the specter of Washington’s crisis-driven mismanagement.”
Remember, this is in a context in which we are still almost 9 million jobs below trend level. We have millions more working at part-time jobs who would like full-time jobs. Real wages have not grown in more than a decade. And, we are losing $1 trillion in output every year or more than $80 billion a month because there is not enough demand in the economy.
This situation is leading to families being ruined and children being deprived of the sort of upbringing that will allow them to be successful as adults.
Yet, we have someone telling us that that the actual problems at hand are Medicare and Social Security? The claim on health care costs is bizarre since we have seen a sharper downturn in the rate of growth of spending that we had any reason to believe would come from health care reform. The tax code is a mess, but so what? It was a mess in the 1940s, 1950s, and 1960s yet we still saw solid growth.
The latest set of long-term projections from the Congressional Budget Office show that in the baseline scenario we have decades before we reach debt to GDP ratios that anyone would consider a serious problem. In a world where the immediate problems are so immense, it is difficult to believe that any serious person can be upset that we are not focusing on long-term problems that may not even exist.
This is only a very slight caricature of Jonathan Weisman’s “Congressional Memo” in today’s NYT. He tells readers:
“For three years, Congressional leaders have relied on tactical maneuvers, sleights of hand and sheer gimmickry to move the nation from one fiscal crisis to the next — with little strategy to deal with the actual problems at hand. Medicare and Social Security continue to swell with an aging population. Health care costs grow. A burdensome tax code remains unchanged, and economic revival is shadowed by the specter of Washington’s crisis-driven mismanagement.”
Remember, this is in a context in which we are still almost 9 million jobs below trend level. We have millions more working at part-time jobs who would like full-time jobs. Real wages have not grown in more than a decade. And, we are losing $1 trillion in output every year or more than $80 billion a month because there is not enough demand in the economy.
This situation is leading to families being ruined and children being deprived of the sort of upbringing that will allow them to be successful as adults.
Yet, we have someone telling us that that the actual problems at hand are Medicare and Social Security? The claim on health care costs is bizarre since we have seen a sharper downturn in the rate of growth of spending that we had any reason to believe would come from health care reform. The tax code is a mess, but so what? It was a mess in the 1940s, 1950s, and 1960s yet we still saw solid growth.
The latest set of long-term projections from the Congressional Budget Office show that in the baseline scenario we have decades before we reach debt to GDP ratios that anyone would consider a serious problem. In a world where the immediate problems are so immense, it is difficult to believe that any serious person can be upset that we are not focusing on long-term problems that may not even exist.
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Brad Plummer has a good set of charts showing how different segments of the population have fared in the downturn. I have two minor quibbles with the selection. First, to show the decline in the labor share of output, chart 5 shows the labor share of GDP over the last three decades. This is slightly misleading. The depreciation share of GDP has risen by roughly two percentage points over this period, which means that if the division of wages and profits had stayed constant, the chart would still show a declining share of wages in GDP.
Folks should get in the habit if using net domestic product as the denominator. No one eats depreciation, if we want to look at distribution we should focus on net output, not gross output.
My other quibble is the use of the Sentier Research data for median income. This is a relatively new series which many journalists are turning to as a measure of family income. Unlike almost all the other widely used data sources, this one is not available for free. It might be worth paying for Sentier’s data if there were some valued added, but there really isn’t.
The Census produces annual data on family income. This is what people should look to for movements in median income over time. Sentier produces their data on a monthly basis, which may seem like a big gain, but it isn’t. The monthly movements (it’s actually a 3-month moving average) are dominated by noise. We are not really finding out what is happening with family income month to month, we are just picking up the impact of statistical quirks and erratic seasonal adjustment factors.
This is a case where free really is better. If you want to know what is going on with family income, stick with the Census Bureau.
Brad Plummer has a good set of charts showing how different segments of the population have fared in the downturn. I have two minor quibbles with the selection. First, to show the decline in the labor share of output, chart 5 shows the labor share of GDP over the last three decades. This is slightly misleading. The depreciation share of GDP has risen by roughly two percentage points over this period, which means that if the division of wages and profits had stayed constant, the chart would still show a declining share of wages in GDP.
Folks should get in the habit if using net domestic product as the denominator. No one eats depreciation, if we want to look at distribution we should focus on net output, not gross output.
My other quibble is the use of the Sentier Research data for median income. This is a relatively new series which many journalists are turning to as a measure of family income. Unlike almost all the other widely used data sources, this one is not available for free. It might be worth paying for Sentier’s data if there were some valued added, but there really isn’t.
The Census produces annual data on family income. This is what people should look to for movements in median income over time. Sentier produces their data on a monthly basis, which may seem like a big gain, but it isn’t. The monthly movements (it’s actually a 3-month moving average) are dominated by noise. We are not really finding out what is happening with family income month to month, we are just picking up the impact of statistical quirks and erratic seasonal adjustment factors.
This is a case where free really is better. If you want to know what is going on with family income, stick with the Census Bureau.
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