Call it the last of the red-hot overhangs. Earlier this week, NPR’s Scott Horsley took note of a curious and counter-intuitive trend in disability claims. For the first time in decades — and a few years after a sharp spike — the number of Americans declaring themselves unable to work have started falling. It’s the last piece of a recovery puzzle that stumped a lot of people who should have known better:
During and after the Great Recession, people turned to disability rolls in large numbers to make ends meet. This accelerated what had been going on for a generation, as the federal government’s disability insurance program saw steady growth.
But now, for the first time in decades, the disability rolls are shrinking. More people with disabilities are returning to work and holding on to their jobs. With unemployment at a nearly 50-year low, companies are struggling to find workers. And that means people who had trouble finding a job in the past are suddenly in demand. That includes people with disabilities. …
It’s still unusual for people to leave the disability program and return to work. Less than 1% of recipients do so each year. But the numbers have been growing as the job market has improved. In 2017 more than 51,000 people traded disability checks for paychecks, up from about 32,000 four years earlier.
It’s not like the inflation of disability rolls were a mystery, and yet nearly everyone seemed to forget about them. It began in earnest as the extended unemployment insurance payments began to run out in 2011-12. After a few years of the recovery, economists claimed that the US economy had reached “full employment” based on the U-3 unemployment rate. Yet wages remained flat and personal economies showed little sign of improvement. The same economists began claiming that the normal labor-market wage mechanisms of supply and demand had stopped working and that government intervention on compensation would be required to resolve the problem.
What actually happened during those years of “full employment” was that the U-3, and even to some extent the U-6, only measured the people with some attachment to the workforce. The Great Recession created a massive overhang of workers who had exited the workforce in one way or another that mainly escaped measurement. When pointing out oddly low workforce participation measurements, economists would claim that they only showed the exit of retiring Baby Boomers — a factor, to be sure, but clearly not the main story.
Those overhangs have begun disappearing in a more robust jobs market, and just as one would predict, wages have begun growing again as demand outstrips supply. That competition explains why, as NPR’s Horsley notes, employers are more willing to make adjustments for disabled workers, allowing them to re-enter the workforce. More of the previously disabled also have more incentives to seek out employment rather than rely on the disability safety nets.
That leap of faith speaks volumes about the health of the job market, and of the needs of employers to find people to fill jobs. We may not see the end of the Great Recession overhangs immediately, and it’s still good to remain skeptical about claims of “full employment.” However, we’re back on track to a healthy job market — as long as economic growth continues on its current pace.