The Rise in Disability Among Older Working-Age People

Last month, I noticed something interesting in data I produced to see how the recovery from the Great Recession was going. The data showed that the rise in disability among older working-age people since the Great Recession was entirely offset by a decline in retirement among older working-age people. The BLS recently released a similar finding (Chart 7) for the 55-64 age group since 2004. I've been meaning to explore this further and so I do that here.

Raw Numbers

Between 2000 and 2014, the percentage of people aged 50-64 who were out of the labor force for the entire year because of a disability or illness rose from 9.3% to 12.1%.

This may not seem like much, but in the world of labor force participation a few percentage points is about all you ever get. And a lot of policy people (especially conservatives) are alarmed by this rise.

Over this same period, the percentage of people aged 50-64 who were out of the labor force for the entire year because of retirement fell from 11.4% to 9.9%.

As you can see, the trends somewhat offset one another. If you add them together (and therefore get the net impact of changes in illness/disability and retirement), you find the percentage of people aged 50-64 out of the labor force for either reason goes from 20.7% to 22%. Put another way, the 2.8 point rise in disability is actually only a 1.3 point rise net of the decline in retirement.

Age Adjusted

The above figures are simple percentages drawn from the entire 50-64 age group. The problem with these simple percentages is that the age demographics of that group have become more skewed towards the older end over this period. To get a better sense of change over time, it's necessary to adjust the figures for changes in the age composition of the 50-64 age group.

Here is the same graph as figure 2 above, but this time with an age-adjusted line for each series (the lighter colored line).

Adjusted for changes in the age composition, the disability rate in 2014 is slightly lower (0.1 points) and the retirement rate is quite a bit lower (1.1 points).

When you combine the age-adjusted retirement rate and the age-adjusted disability rate (to see what the net change in the two were over this period), you get no meaningful change at all.

In 2000, the combined disability/retirement rate was 20.7%. In 2014, it was 20.8%.

Takeaways

When it comes to the labor force participation of older workers, we worry about two big things: disability and retirement. One takeaway here is that these two issues have had no net effect on labor force participation for older workers since 2000.

However, the reason there is no net effect is because the rise in one (disability) was offset by the decline in the other (retirement). What to make of this data will largely depend on whether you think these two things are related.

It could be that the reason disability is up and retirement is down is that people who previously would have said they are retired now say that they are disabled. So, for instance, many of the people who became disabled in this age group in the past may have simply retired, but now actually count themselves as disabled (perhaps to get benefits). You would expect this shift if this age group has weaker retirement income options than they used to (especially those more prone to disability).

On the other hand, it could be that these two trends are totally unrelated. In that scenario, the decline in retirement was going to come anyways, and therefore if we had staved off the rise in disability, we could have actually seen labor force paticipation rise. Put another way, on this reading, the rise in disability is stopping us from accessing all those sweet GDP gains from the fall in retirements.

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