How Has Disability Affected U.S. Labor Force Participation?

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 previousmacroblog 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.

This piece is cross-posted from The Fed’s Macroblog with permission.

3 Responses to "How Has Disability Affected U.S. Labor Force Participation?"

  1. verysage   May 13, 2014 at 6:49 am

    I am reminded of the man who got drafted into the army and had no arms. He went to the Sargent and said 'look, I shouldn't be in the Army, I cannot do anything I have no arms." The Sargent said, "See that guy over there pumping water? Go tell him when to quit because he is blind." "In the Army there is job for everyone."

  2. benleet   May 13, 2014 at 1:54 pm

    LFPR is 62.8 in April 2014, a 36 year low mark, not since 1978. If the LFPR were that of April 2000, then U3 unemployment rate would be around 12.5%. over 20 million workers would be unemployed instead of 9.753 million. That said, Japan, Italy, France and Germany have much lower rates. I wonder if the median household living costs, basic needs, has pushed the LFPR up in this country. The Economic Policy Institute publishes a Basic Family Budget Calculator showing Topeka, Kansas, at the median, a four person household needs $63,364 to get by. The median income for a working age family is $63,967 in 2010, down from $69,233 in 2000, a drop of 7.6%. Half of working age families, therefore, do not have the basic income to meet their basic family expenses. That would drive up LFPR. Though the U.S. has the highest disposable income per capita, $40,045, it does not distribute well the abundance, driving more than would be normal into the labor force. What would be normal? Preferences change as do needs.

  3. Hal9King   May 13, 2014 at 3:40 pm

    Yes, a job for everyone. But what does it pay?

    The point is that the amount earned by working does not compensate much beyond or near the amount for quitting work.

    Many might claim its socialism … not the case. Its capitalism.
    The 'Army' in the above example is much like socialism. It will find a job and force the individual to do it .. whether they want to or not. A society based on capitalism lets the individual decide if its worth it.