We’re facing a labor shortage, and Congress can help.
Nationwide, the unemployment rate is below 4 percent. Here in the Midwest, no state has a rate above 5 percent, and Iowa, Minnesota, and Wisconsin have rates below 3 percent. After a slow, sometimes halting recovery, Rust Belt states in 2018 now have more jobs than they can fill.
It’s an unfamiliar problem, if a good one to have. And it provides an opportunity for the federal government to undertake a long-overdue reform of disability insurance.
More than 10 million Americans receive federal Social Security Disability Insurance (SSDI) benefits. At a mounting cost to taxpayers, $143 billion per year, most disability beneficiaries are permanently out of the work force. But this doesn’t have to be the case. By providing the proper support and incentives, reforms to disability insurance could spur reentry into the labor force for hundreds of thousands of workers.
Until very recently, SSDI grew at a staggering rate. Despite no changes in self-reported health and disability among the working-age population, the number of disabled workers on SSDI grew from 3 million in 1990 to a peak of nearly 9 million in 2014. While some of this was the product of overall population growth, an aging work force, and the entry of women into the labor force, nearly half of it appears to have come from the rising value of benefits for low-wage workers and changes to the program’s eligibility criteria.
Impairments that involve pain or mental disorders represented half of disabled worker beneficiaries in 2017. These impairments, while serious, can be hard to define. If an applicant does not qualify on strict medical evidence, demographic characteristics such as age, work experience, education, language ability, and location are considered when weighing whether to offer benefits, and more then half of all SSDI determinations in 2017 included these “vocational considerations.” A 2013 RAND Corporation study found that nearly a quarter of SSDI applicants have conditions vague enough that whether they receive benefits largely depends on whether they get an easy or hard initial examiner.
SSDI beneficiaries receive, on average, $1,196 per month, or nearly $14,000 per year. After two years, beneficiaries are eligible for Medicare. It is not lucrative. And applying for benefits is a lengthy process that can take from four to 33 months. But for many low-wage workers, particularly in rural America, applying for disability benefits became a lifeline as wages stagnated and jobs disappeared. The Washington Post recently found that of 102 counties in which at least one-sixth of adults receive disability, all but two are rural.
Now that the economy is red-hot and businesses desperately need workers, reforming federal disability ought to be part of the strategy to meet work-force needs. Disabled workers are an asset, and many of the disabled don’t have to be permanently out of the work force. The Trump administration has proposed demonstration projects in eight states to experiment with the best ways to keep disabled workers from leaving the work force or to spur their return. The most recent Trump budget proposal sought enhanced scrutiny for SSDI beneficiaries who apply after being on unemployment insurance, as well as rehabilitation and occupational therapy for those with arthritis or back pain.
A new report from my employer, the Wisconsin Institute for Law & Liberty, endorses federalism as the best solution. The 1996 welfare reform proved that states were better at structuring benefits programs to help citizens in need while creating the proper incentives for labor-force participation. The same thing could work with disability. The Secretaries Innovation Group, a partnership of state-level human-service and work-force secretaries, has developed proposals that would reward employers who make accommodations for disabled workers by providing tax incentives, creating partial and temporary disability benefits, and offering case management and early intervention.
A labor market with adequate jobs and rising wages is the perfect opportunity to reform disability insurance. And if Washington won’t fix it, it ought to allow states that need workers the opportunity to take on the challenge. For disabled workers that can be retrained or rehabilitated, there are real opportunities to contribute. As it stands, too much human potential is being sidelined at too high of a cost.