Policymakers and others agree that America’s economic growth rate is anemic. Our current annual growth rate of only 1.5 percent is far from realizing its full potential. We understand that fact in Northeastern Pennsylvania better than most. It remains one of the key reasons why we continue to worry about our future, as Pennsylvania’s unemployment rate is above the national average of 7.4 percent and our region surpasses the Keystone State’s overall unemployment rate.
Northeastern Pennsylvania’s 9.4 percent unemployment rate might be artificially high for structural reasons, namely the historic inability of our regional economy to respond as quickly to national employment trends both on the downside of the business cycle and the upside as well.
The unemployment rate for the country is influenced not only by the number of people employed, but by the number of people looking for work. The U.S. Bureau of Labor Statistics counts only people working or looking for work in calculating the number of unemployed. Real unemployment, therefore, is higher than reported because there are people not looking for work who are not counted as unemployed.
One group that boosts the number of unemployed not looking for work is those people on Social Security Disability. Between December 2007 and March 2013, the number of Americans on disability swelled from 7.1 million to 8.9 million — a 5.4 percent increase. This places an inordinate burden on the shrinking Social Security Trust Fund.
The rapidly growing number of individuals “stuck in disability” has had, and might continue to have, a negative impact on economic growth and the recovery, according to the Wall Street Journal. In early April, the national labor participation rate — the number of people working or seeking work — fell to its lowest level since 1979, a period of rapid inflation and little economic growth. This is certainly the wrong direction for what is supposed to be today’s recovering economy.
A major culprit for this economic anomaly seems to be the number of people “stuck” in the Social Security Administration’s disability programs. “Few people are willing to trade their disability checks for paychecks, in part because the program doesn’t give much incentive to leave,” according to the Wall Street Journal.
This reality is often exacerbated by the specific circumstances of the unemployed individual. For instance, if an unemployed parent on disability decides to take a job that requires work outside the home, then the cost of child care must be deducted from their potential earned income. The added expense makes taking a job even less desirable.
MIT economist David Autor suggests the economy “has a case of hysteresis” created by the transfer of workers who are unwilling to “forfeit economic security for a precarious job market.” These people are not necessarily slackers. They are, however, individuals who can average about $13,560 a year on unemployment benefits alone or about $2,000 less than full-time wages at the federal minimum wage of $7.25 an hour. Furthermore, after two years on disability, people are eligible for Medicare health insurance — another program that was designed to help the unemployed, but one that also encourages the status quo among recipients
How do we as a nation respond to this policy-inflicted unemployment problem? The solution is not obvious nor is it easy, especially for a caring society that sincerely wants to help those in need.
The answer seems to lie in solving two key issues: Giving people an incentive to return to the workforce by adjusting disability payments and other government programs, and secondly, enhancing the capabilities of people receiving disability payments so they can learn the skills necessary to re-enter the job market regardless of their disability.
The first solution will allow people who are currently unemployed to receive some payments even after finding a job. The payments will be reduced as an individual’s income continues to increase. Some state and federal programs are beginning to do this now. The second initiative helps people improve their skills and their employability.
As a truck driver with herniated discs in his back said to the Wall Street Journal, “Just because my body is broke doesn’t mean my mind is.”
It will not be easy to initiate either of these two suggested cures. What is clear, however, is that many people on disability want to work, but they find too many disincentives to do so. The myriad of overlapping programs when combined with the new health care legislation might actually exacerbate the problem.
In the 1960s, liberal Democratic New York Sen. Patrick Moynihan served on a federal commission to examine the social and economic issues associated with programs that incentivize rather than address unemployment. His seminal report indicated the problem was a significant one and that federal welfare programs needed to be adjusted to address it.
Sen. Moynihan was right more than 50 years ago. Unfortunately, we continue to lack the political will to deal with these issues forthrightly. Until we address the real problems behind unemployment, it will be a continuing issue for our nation and for our region.
Michael A. MacDowell, of Harveys Lake, is a former economics professor and the retired president of Misericordia University in Dallas Township. He also is the managing director of the Calvin K. Kazanjian Economics Foundation.