On Oct. 5, the Bureau of Labor Statistics announced that the official unemployment rate had dropped from 8.1% to 7.8% — a surprisingly sharp decline given the slow pace of growth in the U.S. economy. The reaction from many on the right was incredulity, with some even suggesting that political appointees in the Obama Administration had tampered with the Labor Department’s report to give the President a political boost in the final weeks of the election. Although these conspiracy theorists were dismissed by pundits on both the left and the right, that’s where agreement on the report ended. Conservatives have long argued that the official unemployment rate understates the sluggishness of the economy and that much of the decline in the rate is a result of people giving up their job searches and dropping out of the labor force entirely. Supporters of the President say the decline in the number of workers in the labor force is caused by the aging of the workforce — as our nation gets older, there will naturally be a larger portion of the population that is retired.
All this back and forth underscores the fact that the unemployment rate is not the cut-and-dried, authoritative statistic that the media often portray it to be. The so-called discouraged worker is one factor that muddies the data, for example. The Labor Department determines the unemployment rate by surveying 60,000 households and asking respondents a series of questions to determine their employment status. If a citizen is out of work but hasn’t looked for a job in the past four weeks, he isn’t considered employed or unemployed; he simply isn’t counted as part of the labor force.
The reason for this is simple: a retired person, say, or a parent who voluntarily stays home to raise his children shouldn’t be considered unemployed. The problem is that, using this methodology, someone who becomes so discouraged by the state of the job market that he gives up looking for work won’t be counted as unemployed either, even though logic says he should be. Ideally, you want to have a measure that eliminates people who are obviously not in the labor force, like stay-at-home parents, but includes people who want work but can’t get it, like discouraged workers.
It turns out that tracking the discouraged-worker population is only one of the difficulties in measuring the unemployment rate. To mitigate these kinds of problems and give the public a better understanding of the total employment picture, the Labor Department issues six different measures of employment, with the official rate being just one of the six. The most inclusive measure, called U6, classifies discouraged workers (as well as those who are working part time but would like to work full time) as unemployed. In a sluggish economic recovery the U6 rate may be a better barometer for the state of the economy. And by this measure, the economy is improving at a slower pace than the official rate indicates.
But even with these alternative metrics, there are blind spots in the data. One of the biggest is the Social Security Disability Insurance (SSDI) program. SSDI is for workers who have paid into the system but are unable to work because of a long-term medical condition. Obviously, workers who are severely disabled and unable to work should not be considered part of the labor force — their inability to work is not a function of the economy, after all. But huge increases in the SSDI rolls over the past several decades have given ammunition to those who argue that all measures of unemployment compiled by the Labor Department are understated.
Since 2007, the number of people receiving benefits from the program has increased by 23%, to 11 million. While this is a large increase, it is really just an extension of a trend that has been going on for decades. According to a recent Congressional Budget Office report, disability rolls increased six times between 1970 and 2011, far outstripping population growth during the same period. What’s notable, however, is that the percentage of the population receiving benefits tends to rise during recessions — suggesting that the program, which was created to help Americans who are unable to work under any economic condition, is being used by many Americans to help them get through periods of temporary unemployment. As a 2010 Center for American Progress report on the SSDI program said:
When Congress created SSDI in 1956, disability and employability were viewed as mutually exclusive states. As a result, the 1956 law defines disability as the “inability to engage in a substantial gainful activity in the U.S. economy” — in other words, the inability to work. The SSDI program still uses this definition, providing income support and medical benefits exclusively to workers who are out of the labor force and cannot be expected to work in the future, as determined by the Social Security Administration (SSA).
It is clear that the program operates differently from what these stated goals suggest and that the Bureau of Labor Statistics should be counting many of these recipients as unemployed or discouraged workers. The fact that it isn’t seems to result in a systematic undercounting of the true state of unemployment in the country. And, by the way, this isn’t just a right-wing critique of a Democratic Administration’s estimate of the employment situation. In fact, Austan Goolsbee, President Obama’s former chair of the Council of Economic Advisers, wrote an op-ed in the New York Times criticizing the practice, alleging that it understated the gravity of the recession during President George W. Bush’s first term:
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.
The left and the right will disagree on the question of how generous SSDI should be. But setting that debate aside, it should be universally recognized that it is no longer simply a program for the terminally unemployable. And if we want to have a clearer picture of the state of the economy, there should be measures that take into account the fact that a growing percentage of the population is receiving benefits from this program, even though these workers would like to — and possibly will be — employed again in the future.