When It Pays Not to Work

September 17, 2013

Congress should reconsider eligibility criteria and benefit levels for programs such as unemployment insurance, food stamps and disability insurance. These programs have ballooned over the past five years, discouraging work, says Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute.

It is understandable that people drop out of the labor force -- stop looking for work -- when unemployment is rising and they have become discouraged. But, since the employment rebound from when the 2007-2009 recession began in May 2010, the labor force participation rate has fallen for both men and women.

  • It now stands at 63.2 percent, down two-tenths of a percentage point from July.
  • That is the same level as in 1978, prior to the decade where millions of women marched into the labor force.

A reason for this continuing trend is the vast array of government benefits.

  • Over 8.9 million adults received disability insurance from the Social Security Administration in July 2013, the latest data available.
  • The number of people receiving benefits is 23 percent higher compared to five years earlier and 55 percent higher than 2003.
  • Benefits are higher, too -- recipients get an average of $1,129 monthly, 12 percent more than in 2008 and 35 percent more than in 2003.
  • Over 47 million Americans receive benefits from the Supplemental Nutrition Assistance Program (formerly food stamps).

Unemployment insurance is particularly relevant both because it represents a large share of all benefits paid to individuals and because of the dramatic extension of benefits, from 26 weeks to 53 weeks. During the recession, benefits were extended to 99 weeks.

The shrinkage of the labor force has profound implications for future economic performance. Reduced economic growth will lead to steadily higher tax burdens on existing workers, which will in turn discourage labor force participation. This race to the bottom needs to be stopped.

Source: Diana Furchtgott-Roth, "When It Pays Not to Work," Economic Policies for the 21st Century, September 9, 2013.

 

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