2003 December 01 Monday
Growing Ranks Of Officially Disabled Understates Unemployment Level

A rise in disability payments in the United States causes an understatement of the real unemployment rate.

By the end of the 1990's boom, this invisible unemployment seemed to have stabilized. With the arrival of this recession, it has exploded. From 1999 to 2003, applications for disability payments rose more than 50 percent and the number of people enrolled has grown by one million. Therefore, if you correctly accounted for all of these people, the peak unemployment rate in this recession would have probably pushed 8 percent.


Unfortunately, underreporting unemployment has served the interests of both political parties. Democrats were able to claim unemployment fell in the 1990's to the lowest level in 40 years, happy to ignore the invisible unemployed. Republicans have eagerly embraced the view that the recession of 2001 was the mildest on record.

Keep in mind, though, that a lot of loafers on disability payments who are not really disabled would be working if they were not able to receive the payments. So while the argument by Austan Goolsbee that disability payments cause an underestimate of official unemployment not all those who are unemployed and on disability are unemployed as a result of worsening economic conditions.

Many European countries have a suspiciously high percentage of their populations classifed as disabled.

The need for reform is clear. OECD countries spend at least twice as much on disability-related programmes as they spend on unemployment programmes. Disability benefits on average account for more than 10 percent of total social spending. In the Netherlands, Norway and Poland they reach as much as 20 percent of social expenditure.

The Netherlands has a low unemployment rate by European standards. But about one seventh of the Netherlands working age population lives on disability payments.

The absurdly generous disability scheme, the WAO, has nearly 1 million people on its rolls out of a total working-age population of 7 million.

In Sweden the misclassification of unemployed workers as disabled occurs on an even greater scale.

By October more than 800,000 people, or a fifth of the workforce, were on sick leave or had been pensioned off early, according to the National Insurance Board. The cost from January to October was 86.5 billion crowns ($11.45 billion) or 15 percent of spending.

Those rates are the worst in the EU and have doubled in two years, despite the healthy lifestyle of a people who smoke and drink less than other Europeans, do more sport and have the world's third highest standard of living in U.N. rankings.

The populations of the Western democracies are aging. The burden of supporting the swelling ranks of the elderly looks set to grow substantially. The Western countries need to push the able-bodied among their populations out into the workforce to work, produce goods and services, and pay taxes to support those who really can not work.

Share |      By Randall Parker at 2003 December 01 01:39 PM  Economics Political


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