Colby Cosh: How the 1% accidentally pushed so many Americans onto the disability dole (and why it didn’t happen in … – National Post

Two Canadian economists, UBCs Kevin Milligan and Wilfrid Lauriers Tammy Schirle, have published a new working paper on a subject dear to my heart: the high use of disability insurance, particularly Social Security disability insurance, in the United States. At the end of March 2017, the monthly report from the U.S. Social Security Administration declared that the country has almost exactly 14 million people under the age of 65 receiving some sort of federal disability payment.

This figure includes spouses and dependents of disabled workers, and a few children receiving supplemental income on the grounds of their own disability. The number of actual workers judged to be no longer capable of work, and collecting on Social Security disability insurance earned during their careers, is listed as 8,778,000.

The overall working-age population of the U.S., ranging from ages 15 to 64, stands at about 205 million. So even if we generously leave teenagers in the denominator, thats about four per cent of the American working-age public on disabilityfrom one particular federal program (admittedly the dominant one). However, that quotient does not include any veterans with a service-related disability (there were close to four million of those in 2015), anybody on a state disability program, anybody in a workers compensation scheme, or anyone receiving private disability insurance.

About four per cent of the American working-age public is on disability. This is not normal.

This is not normal, as Milligan and Schirle point out in their paper. Since 1990, the rate at which Americans go on disability insurance under Social Security has increased by two-thirds for men. Over the same period, it tripled for women, as increasing female workforce participation made most of them eligible independent earners. They now become formally disabled at almost the same rate as men.

As dangerous industrial jobs disappear, life in almost every regard becomes vastly safer, and work itself becomes more disabled-friendly, the U.S. has nonetheless experienced a substantial increase in the disabled population, even while Social Security rolls have held steady for the past couple of years. These results contrast with other advanced welfare states, which are usually thought to be much more generous. The Canada Pension Plan disability benefit, for example, attracts workers at one-third the rate.

To my regular readers this will all sound like the set-up to one of those columns where I dig into the guts of a scholarly paper, pointing out surprises and possible pitfalls. To be honest, Milligan and Schirles articleis a little above my pay grade. (My eyes start to wobble out of focus at the sight of the phrase instrumental variables.) But I understand what the authors are trying to do, because its a classy quantitative version of a familiar newspaper columnist trick: they are applying the good old Canadian lens to a foreign issue.

The authors applythe good old Canadian lens to a foreign issue.

The paper is an effort to examine the heavy use of disability insurance in the U.S. workforce a clear outlier among OECD countries, as they put itby using Canada as a sort of statistical control. They have hog-strangling amounts of detailed micro-data on workers from both countries, and by using a lot of modelling tricks and assumptions I am not qualified to judge they use that data to guess what would happen to U.S. disability rates if the U.S. had our economy and our system of public disability benefits.

It is, as they put it, a question of push versus pull. Canadas more resource-based economy did well with high commodity prices during parts of the study period (1996-2016), while manufacturing regions of the U.S. suffered: struggling labour markets could have pushed more American workers onto disability. But Social Security also offers more generous income replacement than the CPP and the QPP do. Maybe public policy is pulling Americans onto disability.

One interesting wrinkle that Milligan and Schirle highlight is not really a result or a finding, but just part of their background research. Still, its something I didnt know, and that you probably dont, even if you are an American. The U.S. benefits formula is closely linked to a national average wage, rather than a median. In Canada, the comparable component in the equation is just a flat ratea number that increases automatically with inflation, blind and deaf to labour market changes.

If a small number of high earners are enjoying wage gains while everyone else stagnates, the average wage still goes up, and that makes disability insurance relatively more attractive.

This means that on the U.S. side, if a small number of high earners are enjoying wage gains while everyone else stagnates, the average wage still goes up, and that makes disability insurance relatively more attractive. The fat cats and technocrats insane high-end incomes trickle down, in a surprising way, directly to Americas most miserable. Perhaps this is a poorly understood way in which American income inequality feeds on itself. Gains among the one per cent end up causing workers at the bottom to drop out and assume a lifelong sick role, all encouraged by an equation.

The actual result of the study is a bit boring. The push and the pull turn out to be about equally important, with the pull of numerically high benefits dominating in the first half of the study period and the push of labour force misery more relevant in the second. Between them, the push and pull factors seem large enough to account for the 1996-2016 trend differences between Canada and the U.S.

But, since their paper is only explaining recent relative trends, it does not account for pre-existing differences in disability-insurance usage, or for the pretty obvious effects of the United States feebler screening criteria (established long before 1996) and its vast, growing kudzu of opportunistic lawyers and administrative disability courts. These are elements of the American disease that are not so easy to quantify.

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Colby Cosh: How the 1% accidentally pushed so many Americans onto the disability dole (and why it didn't happen in ... - National Post