Is Disability Holding Back the Recovery?

In Monday's post, I made an attempt to quantify how the employment situation in the country has changed since the Great Recession. Here is how things have changed overall:

Here is how things have changed for ages 18-64.

And here is how things have changed for ages 25-54 (prime age adults):

The very general takeaway here is that we have millions of missing full time workers who have navigated to a number of other categories.

Disability

One of the natural responses to these graphs is to look at the 2 million disabled people and conclude that disability is one of the big things holding us back (with a hint that its really nondisabled people claiming disability benefits that are the issue). However, when you break down the disability changes by age and also compare it to retirement changes, this theory doesn't pan out that well.

Overall, we have 2 million more disabled people now than we would have if we had returned to the overall employment situation that prevailed in October of 2007. But we also have 1.3 million fewer retired people. So, the drop in retired people offsets 65% of the increase in disabled people. Net of the fall in retirement, we only have 0.7 million new disabled people. This represents only 13% of the 5.2 million missing workers.

Here is how the 2 million new disabled people are distributed across the various age groups:

Notably, 565,000 of the new disabled people are in the 15-34 age group. These aren't people you'd generally expect to be abusing disability benefits as they are young and don't have much of an earnings record. Among prime age adults (ages 25-54), it's striking that there are about the same number of disabled people in the 25-34 age group as there are in the 45-54 age group, as it's the latter group where you'd expect the benefit scoungers to be.

Here is a similar graph as above but featuring the change in retired people:

Notice that for the older groups, the drop in the number of retired people completely offsets the rise in the number of disabled people. If you combine the retired group and the disabled group together (to see what the net change is), it looks like this:

As you can see, the oldest age group, ages 65-75, actually has 581,000 fewer people identifying as either disabled or retired. Many of those people are probably in the labor force (this group has 763,000 more full-time workers).

For the 55-64 age group (perhaps the group most ripe for disability benefits issues), the net change in people who are either retired or disabled is around 59,000.  The number of disabled people in this group is up 878,000, but the number of retired people is down 819,000. This could be because people who previously were disabled at these ages felt comfortable retiring but now need disability benefits to make it to retirement age. It could be that there is both a disability problem and a separate phenomenon going on where fewer people in the 55-64 age group are retiring. But, in either case, the fact is that the fall in retireds has made it such that the rise in disableds is not causing labor force problems (on net).

Interestingly, if you look at ages 45-75 all together, the number of people identifying as either retired or disabled has fallen by 162,000 people.

Putting it all together, this data presents two basic problems with the idea that nondisabled people abusing disability benefits can explain our labor market woes. The first is that a big chunk of the increase in disabled people is coming from younger ages where the benefit explanation doesn't make much sense. The second is that, among older ages, the increase in disabled people has been largely or entirely (depending on how you bin the age groups) offset by the decrease in retired people.

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