Are American's Abusing Social Security Disability?
Does anyone remember the 1990s? Economic growth was robust, the stock market was exploding and unemployment was low. Even though outsourcing was just emerging as a new business practice, there were more jobs than employees in America, and the Federal Reserve Board Chairman worried about "irrational exuberance." If you had a degree you had a job, and you had a car (or 2) and a house as you awaited ever rising income and asset values.
Oh my, how times have changed. A third of U.S. homes are worth less than the mortgage, auto sales fell off a cliff as GM and Chrysler filed bankruptcy, trust in banks has disappeared, savers earn nearly 0% yet investors shun stocks and laugh at declining values of IPOs. And unemployment remains stubbornly stuck just below double digits as job growth remains anemic, despite reduced outsourcing and rising oversees costs.
So how do Americans react to limited economic growth? Apparently, increasingly, by feigning disabilities in order to create their own form of social welfare net similar to Europe. Regardless of what Americans say, it is important to look at what they do.
This week I am pleased to offer you a guest blog from Jack Ablin, Chief Investment Officer of Harris Private Bank, a division of BMO Financial:
Working conditions in the United States are getting downright dangerous if the Social Security disability statistics are any indication. The number of Americans collecting disability is rising at an unprecedented and alarming rate. This belies Bureau of Labor Statistics data that tells the story of workplace safety that is constantly improving. Everyone knows that injury incidence rates have been in secular decline since, well, always.
When thinking about worker-related risks, "Lunch atop a Skyscraper," the famous Depression era photo by Charles C. Ebbets immediately comes to mind. What we once accepted at the workplace is now wildly unacceptable:
In 2010, there were 3.5 total recordable cases of non-fatal occupational injury and illness per 100 full-time workers, down from 5.0 less than a decade ago. In 1973 the rate was 11 per 100. The net decline amounts to a 3.7 percent reduction in these hazards every year for four decades.
Of course, not all injuries and illness are work related. Then again, is there any aspect of our lives that has not become safer in the last two generations? For example, auto injuries are always a factor. But those risks have collapsed with the advent of airbags, anti-lock brakes and other technological breakthroughs.
The Social Security Administration’s website cites two criteria for disability eligibility:
• You must be unable to do any substantial work because of your medical condition(s); and
• Your medical condition(s) must have lasted, or be expected to last at least 1 year, or be expected to result in your death.
Quizzically, from 1980 to 2002 there was no change in the percentage of the workforce claiming disability, yet the “disability participation rate” has embarked on a 4.5 percent ascent each year for the last decade. There is now 1 person collecting disability for every 12 in the workforce.
This occurred despite the evolution toward more of a “desk job” workforce. The Bureau of Labor Statistics reports that today only 14% of working Americans are in goods producing jobs, down from more than 25% in 1973. Yet, somehow, claims for disability benefits have headed in the opposite direction:
There are people out there that truly want to work but are too sick or injured to do so. Sadly, many are unfortunately being branded with a stigma because of the legions that are out there gaming the system. That is the only way we can explain how almost as many people collect disability (10.8 million) as there are working in the entirety of manufacturing (12 million).
It is plain to see that permanently stagnant labor markets are making Social Security disability the new unemployment benefit.
The impact of America's "no growth decade" from 2000-2010 is clearly impacting America. I want to thank Jack for his analysis. I urge your to sign up for Jack's newsletter, full of insight about the economy, interest rates, investing and jobs by contacting him at firstname.lastname@example.org. Jack is a graduate of Vassar and has his MBA from Boston University. He is a CFA and frequent contributor to CNBC, Bloomberg, Barron's and The Wall Street Journal.