Imagine for a moment that Congress woke up one morning, realized that the United States was suffering from a paralyzing long-term unemployment crisis, and, in a moment of progressive pique, decided to create a welfare program aimed at middle-aged, blue-collar workers.
The one thing everybody could probably agree on is that it should help all those jobless 50-somethings find employment, right?
Well, as NPR's Planet Money argues in an eye-opening story, it turns out there already is a "de facto welfare program" for those struggling Americans. The problem is, instead of getting the unemployed back on their feet, it pays them to give up work for good.
I'm talking about Social Security's disability insurance program, which over 20 years has quietly morphed into one of the largest, yet least talked about, pieces of the social safety net. Since the early 1990s, the number of former workers receiving payments under it has more than doubled to about 8.5 million, as shown in Planet Money's graph below. More than five percent of all eligible adults are now on the rolls, up from around 3 percent twenty years ago. Add in children and spouses who also get checks, and the grand tally comes to 11.7 million.
That rapid, under-the-political-radar expansion has turned the program into a massive budget item. As of 2010, its monthly cash payments accounted for nearly one out of every five Social Security dollars spent, or about $124 billion. In 1988, by comparison, it accounted for just one out of eight Social Security dollars. Because disabled workers qualify for Medicare, they also added $59 billion to the government's healthcare tab.
Are disabilities just becoming more common? According to economists such as MIT's David Autor, the evidence says no. The workforce is indeed getting older, and thus more ailment prone. But Americans over 50, who make up most disability cases, report much better health today than in the 1980s. And demographers have found that the percentage of Americans older than 65 suffering from a chronic disability has fallen drastically since then. In the end, economists Mark Duggan and Scott Imberman estimate that, at most, the graying of America's workers explained just 4 percent of the increase in the rate of disability program participation for women, and 15 percent for men, through 2004.
Instead, it seems two things have happened: Qualifying for disability got easier, and finding work got harder. As the Planet Money piece puts it, "there's no diagnosis called disability." According to the letter of the law, disability recipients must prove they are too physically or mentally impaired to hold a job. And early in the program's life, the most commonly reported ailments were easy-to-diagnose problems such as heart-disease, strokes, or neurological disorders. But after the Reagan administration began trying to thin out the program's rolls in the early 80s, an angry Congress reacted by loosening its criteria. Suddenly, subjective measures like self-reported pain or mental health problems earned more weight under Social Security's formula. Today, the most common diagnoses are musculo-skeletal issues, such as severe back pain, and mental illnesses, such as mood disorders -- health problems where the line between a disability and a mild impairment is far blurrier.
Just as the bar for disability fell, the economy turned on the working class. Factories laid off their assembly workers. The service sector picked up the slack. Wages stagnated for anyone without a college diploma. These changes have made disability more attractive for reasons both obvious and subtle. Although program's payments are small -- the average benefit is a bit over $1,000 per month -- they're not much worse than a minimum wage job. Better yet, they're indexed to inflation, meaning they sometimes rise faster than wages, and come with generous government healthcare. For former blue-collar workers who feel they've lost all hope of finding employment, or who don't want to spend their last years leading to retirement standing all day at McDonald's, disability isn't a bad offer.
It's little surprise then that, as MIT's Autor notes, disability applications tend to rise and fall with the unemployment rate (as shown in his chart below), or that most applications come from workers who have recently lost jobs.
If you're a conservative, the reasons to worry about all this are obvious. There are probably a couple million people who could work if absolutely necessary, and are instead choosing to subsist on taxpayer money. The system, from that perspective, is simply being abused.
But the failures here should be obvious to liberals, too. If the job market is so miserably weak that these workers cannot find jobs -- that they are choosing to live in government-guaranteed poverty rather than take a chance on the labor market -- we need to find a better solution than paying them to sit while their skills atrophy. As of now, that's all we seem to be doing. Despite Clinton-era changes to the program that made it possible for participants to ease back into the work force without losing all their benefits, less than one percent of Americans who go on disability ever leave the program.
Moreover, that program is headed for bankruptcy. As of last year, Social Security's disability trust fund was on pace to run dry by 2016, which would lead to an automatic 21 percent benefit cut affecting all of the program's participants, including the millions who truly can't work because of their impairments.
Like I said, even if we wanted a new welfare program for the struggling poor, this wouldn't be the way to run it.