Goolsbee: Disability distorts unemployment stats

[Michael Pollak <mpollak@xxxxxxxxx>]

URL: http://www.nytimes.com/2003/11/30/opinion/30GOOL.html

The New York Times
November 30, 2003

The Unemployment Myth

   By AUSTAN GOOLSBEE

   C HICAGO

   The government's announcement on Tuesday that the economy grew even
   faster than expected makes the current "jobless recovery" even more
   puzzling. To give some perspective, unemployment normally falls
   significantly in such economic boom times. The last time growth was
   this good, in 1983, unemployment fell 2.5 percentage points and
   another full percentage point the next year. That's what happens in a
   typical recovery. So why not this time? Because we have more to
   recover from than we've been told.

   The reality is that we didn't have a mild recession. Jobs-wise, we had
   a deep one.

   The government reported that annual unemployment during this recession
   peaked at only around 6 percent, compared with more than 7 percent in
   1992 and more than 9 percent in 1982. But the unemployment rate has
   been low only because government programs, especially Social Security
   disability, have effectively been buying people off the unemployment
   rolls and reclassifying them as "not in the labor force."

   In other words, the government has cooked the books. It has been a
   more subtle manipulation than the one during the Reagan
   administration, when people serving in the military were reclassified
   from "not in the labor force" to "employed" in order to reduce the
   unemployment rate. Nonetheless, the impact has been the same.

   Research by the economists David Autor at the Massachusetts Institute
   of Technology and Mark Duggan at the University of Maryland shows that
   once Congress began loosening the standards to qualify for disability
   payments in the late 1980's and early 1990's, people who would
   normally be counted as unemployed started moving in record numbers
   into the disability system a kind of invisible unemployment. Almost
   all of the increase came from hard-to-verify disabilities like back
   pain and mental disorders. As the rolls swelled, the meaning of the
   official unemployment rate changed as millions of people were left
   out.

   By the end of the 1990's boom, this invisible unemployment seemed to
   have stabilized. With the arrival of this recession, it has exploded.
   From 1999 to 2003, applications for disability payments rose more than
   50 percent and the number of people enrolled has grown by one million.
   Therefore, if you correctly accounted for all of these people, the
   peak unemployment rate in this recession would have probably pushed 8
   percent.

   The point is not whether every person on disability deserves payments.
   The point is that in previous recessions these people would have been
   called unemployed. They would have filed for unemployment insurance.
   They would have shown up in the statistics. They would have helped
   create a more accurate picture of national unemployment, a crucial
   barometer we use to measure the performance of the economy, the
   likelihood of inflation and the state of the job market.

   Unfortunately, underreporting unemployment has served the interests of
   both political parties. Democrats were able to claim unemployment fell
   in the 1990's to the lowest level in 40 years, happy to ignore the
   invisible unemployed. Republicans have eagerly embraced the view that
   the recession of 2001 was the mildest on record.

   The situation has grown so dire, though, that we can't even tell
   whether the job market is recovering. The time has come to correct the
   official unemployment statistics to account for those left out. The
   government agencies that can give us a more detailed and accurate
   picture of the nation's employment situation the Census, the Bureau of
   Labor Statistics and the Bureau of Economic Analysis need additional
   funds and resources from Congress to do their jobs.

   Otherwise, announcements about a rebounding economy will continue to
   show only half the picture. Take the revised numbers released by the
   Commerce Department on Tuesday. They showed that output in the third
   quarter grew at a rate of 8.2 percent, an extraordinary pace, and
   productivity grew even faster. Almost no one noted, though, that
   Social Security also announced the latest data on disability
   applications. Almost 200,000 people applied in October up 20 percent
   from the previous month tying the highest level ever. Despite the
   blistering growth of the economy, the invisible unemployment problem
   continues.

   We didn't have a mild recession and a jobless recovery. We covered up
   a deep recession and will need a sizable bit of recovery just to get
   us back to the point the unemployment rate suggested we already were.
   As the Red Queen said to Alice in "Through the Looking Glass": "Here,
   you see, it takes all the running you can do to keep in the same
   place. If you want to get somewhere else, you must run at least twice
   as fast as that!"

   Austan Goolsbee is professor of economics at the University of Chicago
   Graduate School of Business.

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