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Forbes.com

 

Disability Insurance Reform: Ending Idleness As We Know It

March 13, 2014

By Peter D. Salins

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There has been no lack of partisan disagreement this year about the costs and benefits of the U.S. "entitlement state." Congressional Republicans succeeded in limiting unemployment benefits and seriously contemplated slashing food stamp benefits. Democrats countered that such measures were heartless and would seriously damage the economy. Curiously absent on both sides of this debate was any discussion of why America’s income support programs have grown so much in recent years, or how—other than through draconian (and politically infeasible) cuts—they might be scaled back.

Under current federal rules, the only kind of assistance available to the millions of Americans who can’t find or hold onto a job—even those eager and able to work—is the dole. In sharp contrast, in Germany and Scandinavia—the very epicenter of European social democracy—government programs are designed to keep as many working age adults as possible in the workforce.

American workers used to have the developed world’s strongest work ethic. No longer; over the last five decades the American work ethic has been systematically undermined by a number of government policies that pay people not to work. One result: the percentage of working men over age 20 has fallen from over 84 percent in 1950 to under 68 percent in 2012.

Each of these programs could be restructured so that its funds are used to underwrite work rather than idleness. The most egregious is our disability insurance program. Between 1970 and 2011, U.S. disability rolls grew by 474 percent while in the same period the nation’s labor force grew by 85 percent. This explosive growth occurred alongside great advances in workplace safety, a massive shift in jobs away from strenuous or dangerous occupations, and generally improving adult health. Most alarmingly, disability enrollment has accelerated over just the last 13 years; in 2000, the ratio of disabled to all workers was still 3.8 percent.

Recent studies of the U.S. disability program confirm that virtually all the growth in both applications and approvals is related to the inability of applicants to find or keep employment, not to any increase in actual work-impairing disabilities. Responding to the same reality, Denmark, rather than just sending checks to idled workers, has designed its comparable program to help disability applicants find or keep a job (compatible with their documented infirmity) and, if necessary, supplementing the salary. There is no reason why we couldn’t implement a similar mix of job placement initiatives, income supplements, and stringent fraud reduction efforts.

The underlying rationale for unemployment insurance is sound: when workers lose their jobs through no fault of their own they should not become indigent. But that does not mean the program needs to subsidize idleness, as it currently does. Aside from cost, this is most harmful to the career prospects of its beneficiaries, especially if those who remain unemployed for long periods. Here, we can profitably follow the example of Germany. After 2005, Germany drastically revamped its labor market policy, using the money it otherwise would spend on unemployment benefits to encourage firms to maintain their employment rolls, or even take on new workers. Since then, Germany’s unemployment rate has steadily fallen and is now well below ours.

An American version of this approach might combine stringent work search requirements with employer subsidies paid for out of unemployment insurance revenues. For instance, when any state’s unemployment rate exceeded a specified threshold employers could be eligible for "re-employment" tax credits or, alternatively, the employer share of payroll taxes could be waived for those who take on new workers.

Even Social Security, our largest income support program for non-workers, could easily be restructured so that more American seniors who enjoy working and are healthy enough to work delay their retirement. The most commonly proposed reforms would assure that the longer people work, the greater the "present discounted value" of their lifetime benefits.

We might also consider eliminating the increasingly obsolete option of "early retirement" at age 62. Since that provision’s enactment, life expectancy has risen by four years, the health of the eligible population has steadily improved, and the number of physically demanding jobs held by men has fallen sharply.

The United States has one of the highest human capital stocks in the developed world, at least in part because Americans work more than the citizens of other countries. If we want to maintain this advantage, we must redesign the policies that pay people not to work. With reasonable reforms, our disability, unemployment insurance, and old-age pension programs can enable millions more Americans to rejoin the work force—to their benefit and the country’s.

Original Source: http://www.forbes.com/sites/theapothecary/2014/03/13/disability-insurance-reform-ending-idleness-as-we-know-it/

 

 
 
 

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