February 20, 2013

Incentives matter (a lot) — the growth of “Disabled America”

Filed under: Economics, Government, USA — Tags: , , , , — Nicholas @ 09:40

Colby Cosh discusses the rise and rise of “Disabled America”, the increasing number of adults of working age who are claiming disability support:

Just looking at fiscal and demographic stats from California will cause a cold, invisible hand to clutch at one’s throat, but talking to an endless series of seemingly able-bodied people who casually disclaim any capacity for honest work is even more chilling. When I got home I found out it’s not just California’s problem. In the OECD’s 2010 “Going for Growth” report, the percentage of the working-age labour force (20 to 65 years) receiving any kind of disability benefit or worker’s compensation is estimated at around 5.1 per cent for Canada. For OECD nations as a whole, the figure is 6.7 per cent.

Northern European welfare states, amiright? But for the super-competitive U.S.A., land of the proudly threadbare social safety net, the number was 9.2 per cent.

[. . .]

There is a handful of economists working on the problem without ever gaining much traction in the popular press; the atmosphere of general crisis hasn’t made it any easier for them to be heard. Reading their papers and seeing them plead for the same reforms every few years is almost as depressing as contemplating Disabled America itself. Just as social security for the aged was devised at a time when workers could expect only a few years of life after clearing 65, social security for the disabled was conceived at a time when manual labour was the norm and “disability” denoted identifiable, incapacitating physical injury. No one envisioned a world in which clerical and “knowledge” work had taken over, but the number of people judged totally unable to work had skyrocketed, owing to vague musculoskeletal disorders, unverifiable chronic pain and an astronomical expansion in the definitions of mental illnesses.

If the system is set up to provide more income through disability payments than through a paying job, there will be a tendency for minor ailments to be parlayed into a disability. When the incentives are rigged to encourage a certain kind of behaviour, people will adapt to take advantage of those incentives. If the system will effectively reward you for being “disabled”, it should be no surprise that we get more people applying for disability support.

Even if the economic climate was better, it’s not likely that governments will crack down on those abusing the system for a couple of solid reasons. First, it’s a public relations nightmare waiting to happen and every government worker knows that you never want your name to appear in the media in this kind of context. Second, people on the disability programs don’t count as unemployed and therefore reduce the pressure on the government to “do more” about jobs. And third, it’s easier to just go with the flow and not try to create any ruckus.

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