NCPA - National Center for Policy Analysis

Unemployment and Disability

December 2, 2003

The faster-than-expected economic growth in the third quarter of 2003 makes the current "jobless recovery" even more puzzling, says economist Austan Goolsbee. The last time growth was this good, in 1983, unemployment fell 2.5 percentage points and another full percentage point the next year.

He attributes the difference to the soaring rate of people who are out of the workforce due to disabilities. In Goolsbee's view, this means unemployment was undercounted during the recession.

  • Annual unemployment during this recession peaked at only around 6 percent, compared with more than 7 percent in 1992 and more than 9 percent in 1982.
  • "But the unemployment rate has been low," says Goolsbee, "only because government programs, especially Social Security disability, have effectively been buying people off the unemployment rolls and reclassifying them as 'not in the labor force.'"
  • From 1999 to 2003, applications for disability payments rose more than 50 percent and the number of people enrolled has grown by one million.
  • Almost all of the increase came from hard-to-verify disabilities like back pain and mental disorders.
  • Almost 200,000 people applied for disability in October 2003 -- up 20 percent from the previous month -- tying the highest level ever.

Research by the economists David Autor at the Massachusetts Institute of Technology and Mark Duggan at the University of Maryland suggests that in during past recessions these people would have filed for unemployment insurance -- thus showing up in unemployment statistics. If so, comparable unemployment was closer to 8 percent in the recession.

Of course, in the past, these people might have gone out and gotten jobs instead.

Source: Austan Goolsbee (University of Chicago), "The Unemployment Myth," New York Times, November 30, 2003; see David H. Autor and Mark G. Duggan, "The Rise in Disability Recipiency and the Decline in Unemployment," NBER Working Paper No. 8336, June 2001, National Bureau of Economic Research.

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