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The Atlanta Fed's macroblog provides commentary on economic topics including monetary policy, macroeconomic developments, financial issues and Southeast regional trends.

Authors for macroblog are Dave Altig and other Atlanta Fed economists.


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May 09, 2014


How Has Disability Affected Labor Force Participation?

Editor's note: Since this post was written, we have developed new tools for examining labor market trends. For a more detailed examination of factors affecting labor force participation rates, please visit our Labor Force Participation Dynamics web page, where you can create your own charts and download data.

You might be unaware that May is Disability Insurance Awareness Month. We weren’t aware of it until recently, but the issue of disability—as a reason for nonparticipation in the labor market—has been very much on our minds as of late. As we noted in a previous macroblog post, from the fourth quarter of 2007 through the end of 2013, the number of people claiming to be out of the labor force for reasons of illness or disability increased almost 3 million (or 23 percent). The previous post also noted that the incidence of reported nonparticipation as a result of disability/illness is concentrated (unsurprisingly) in the age group from about 51 to 60.

In the past, we have examined the effects of the aging U.S. population on the labor force participation rate (LFPR). However, we have not yet specifically considered how much the aging of the population alone is responsible for the aforementioned increase in disability as a reason for dropping out of the labor force.

The following chart depicts over time the percent (by age group) reporting disability or illness as a reason for not participating in the labor force. Each line represents a different year, with the darkest line being 2013. The chart reveals a long-term trend of rising disability or illness as a reason for labor force nonparticipation for almost every age group.

Percent of Age Group Reporting Disability or Illness as the Reason for Not Participating in the Labor Market


The chart also shows that disability or illness is cited most often among people 51 to 65 years old—the current age of a large segment of the baby boomer cohort. In fact, the proportion of people in this age group increased from 20 percent in 2003 to 25 percent in 2013.

How much can the change in demographics during the past decade explain the rise in disability or illness as a reason for not participating in the labor market? The answer seems to be: Not a lot.

Following an approach you may have seen in this post, we break down into three components the change in the portion of people not participating in the labor force due to disability or illness. One component measures the change resulting from shifts within age groups (the within effect). Another component measures changes due to population shifts across age groups (the between effect). A third component allows for correlation across the two effects (a covariance term). Here’s what you get:

Contribution to Change in the Portion of the Population Who Don't Want a Job Because They Are Disabled or Ill


To recap, only about one fifth of the decline in labor force participation as a result of reported illness or disability can be attributed to the population aging per se. A full three quarters appears to be associated with some sort of behavioral change.

What is the source of this behavioral change? Our experiment can’t say. But given that those who drop out of the labor force for reasons of disability/illness tend not to return, it would be worth finding out. Here is one perspective on the issue.

You can find even more on this topic via the Human Capital Compendium.

Photo of Dave AltigBy Dave Altig, research director and executive vice president at the Atlanta Fed, and

Ellyn TerryEllyn Terry, a senior economic analyst in the Atlanta Fed's research department


May 9, 2014 in Employment, Labor Markets, Unemployment | Permalink

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Comments

I wish you had used different colors, its really hard to differentiate the years.

One wonders if there has been a commensurate increase in claims for disability.

As a percentage of the total people not in the labor force, disability as a reason has gone up from~10% in 1998 to ~13% in 2014. That seems like an awfully big jump. Other than an intervening recession, I am struggling to think of what might cause this as I cannot think of any policy changes to entitlement programs that would cause this.

Posted by: dwb | May 10, 2014 at 01:11 PM

I have a real problem with your label "people who don't want a job because they are disabled or ill." My husband is collecting disability insurance after a mental breakdown several years ago and subsequent bipolar disorder diagnosis. Its NOT that he "doesn't WANT to work" because of his illness that has no cure, its because he CAN'T work due to that illness. He has been mourning the loss of his dream career for 9 years now and would do anything he could to be able to work in his chosed field again. Its NOT his fault that his medication and therapy only goes so far in helping him to live a half-way normal life. There is NO CURE for this disease and he has a very hard-to-manage case according to his doctors who are doing everything they can for him, but don't demean him by saying he doesn't WANT to work, because he wants that more than anything and he always will.

Posted by: Susan Buchanan | May 12, 2014 at 11:20 AM

Some conjectures: 1) A rise in the entitlement mentality. 2) A rise in fraud. 3) More lax governmental oversight. 4) Changes in incentives for claiming disability. 5) Greater expectations of near-perfect health as a norm.

Posted by: Marvin McConoughey | May 14, 2014 at 07:29 PM

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