Business Ethos Blog

Really, A Shortage of Workers?

Dr. David Mielke, Retired Dean of the College of Business at Eastern Michigan University

The job market continues to expand and the unemployment rate is now at 4.4%.  Many economists are already concerned that we have a shortage of workers and that the economy can’t expand beyond the low 2% a year unless we have more people employed.  Other experts say the problem is with people lacking the skills, especially in the skilled trades, to qualify for the many unfilled positions across the country.  At the same time we have near record low labor participation rates, that is the percentage of people in the prime working years who are employed.  Do we have a so-called safety net that facilitates able bodied Americans sitting on the sidelines and collecting government benefits?  President Trump’s proposed budget would modestly cut food stamps and disability insurance.  Critics immediately accused him of gutting the safety net.  Is it time to re-evaluate forms of public support to assure that able bodied people get a job?  Without reform will the disability trust fund go broke?  Without reforms to get people back to work, will the US really face a worker shortage—or is it a problem of people willing to work?  What changes, if any should be made?  What is the “Right Thing to do?”  Let’s look at some issues:

  1. The workforce participation rate, percentage of working age people between the ages of 18 and 55 is about 62.8%, near a record low and the lowest since the 1970s.  According to one demographer, the labor force participation rate for men age 25 to 54 is lower now than it was at the end of the Great Depression in the 1930s and overall, only 55% of American adults 18-64 have full-time jobs.
  2. More than a fifth of men of prime working age are on Medicaid.  According to the Kaiser Family Foundation, 41% of non-disabled adults on Medicaid do not have jobs.
  3. Both the House and Senate health care reform bills propose to change the funding of Medicaid from open ended to state block grants.  This will slow Medicaid spending increases, but not change the eligibility to receive benefits.  If enrollment eligibility changes are made, they would be done on the state level.  Under the Obama administration, Medicaid enrollments increased 29%.
  4. The 1956 disability insurance program offers payments to those who become disabled before retiring and the cash benefit is financed by payroll taxes.  Disability insurance pays out about $150 billion a year to nearly 9 million Americans, who after 2 years of benefits are also eligible for Medicaid.  That costs another $80 billion.
  5. The disability trust fund was set to go broke in 2016, but Congress raided another pot of money to delay the day of reckoning for a couple more years.
  6. The number of disability insurance recipients has tripled since the 1980s, when Congress relaxed requirements.  Workers can now cite several smaller ailments, such as back pain, to illustrate an inability to work, as opposed to one debilitating condition.  The expansion also expanded to cover mental health issues, like anxiety and depression.
  7. An applicant can appeal a denial up to 4 times and most cases reach administrative law judges, whose dockets are filled with hearings and have an incentive to award benefits and move on.  The Mercatus Center reported that administrative law judges approved 70% of appeals on average.  About 9% of the judges approved more than 90%.  The judges have lifetime appointments.
  8. A mere 1% of beneficiaries return to work each year.  Most benefits are terminated only when a person dies or is transferred to a retiree program.  One study found that about half of applicants denied benefits will find a job again.
  9. A 55 year old who previously earned about $30,000 a year at work, receives about $15,000 a year in disability payments, plus free Medicaid health care benefits and perhaps other cash transfers like free cell phones and food stamps.  That means any job would have to pay more than what that person loses in subsidies plus the potential cost of health insurance.
  10. President Trump proposed budget reduces spending on federal disability programs by $72 billion over 10 years.  The cuts would be achieved by testing and adopting incentives for individuals to return to the workforce, reducing retroactive payments, tweaking the appeals process for denied claims and other measures to make sure applicants are genuinely disabled.
  11. The 1996 welfare reform under President Clinton demonstrated that attaching work requirements to social benefits like Medicaid, the Supplementary Nutrition Assistance Program (SNAP) or food stamps and Social Security Disability can reduce government dependency and bring people back into the work force.  Within 10 years of the 1996 reform, the number of Americans in the Temporary Assistance for Needy Families welfare program fell 60%.
  12. One study estimates that work requirements would conservatively add 25% of those on Social Security Disability, about 3.3 million people, back into the workforce.  Work requirements for those on SNAP would increase worker roles by 1.9 million if only 10% who are not engaged in work would rejoin.

Does a workforce participation rate near historical lows of 62.8% make sense?  Can we accept that only 55% of adults between the ages of 18 and 64 have jobs?  Is the unemployment rate of 4.4% artificially low because people have voluntarily dropped out of the workforce or are now on Social Security Disability and Medicaid and other social welfare programs?  Is it time to reform Social Security Disability as suggested by President Trump?  Do the health care reforms of the Republicans go far enough—that is, should there be a work requirement for many of those on Medicaid?  What is the “Right Thing to do?”  It is time to get more Americans into the workforce.  We truly have a welfare state when only 55% of working age adults have full time jobs.  The federal disability programs must be reformed and President Trump’s budget provides a good starting point.  Medicaid should have a work requirement.  The dramatic expansion of both those programs under President Obama must be scaled back.  We have the opportunity to bring millions of Americans back into the workforce with reforms and alleviate the worker shortage.  Then we wouldn’t really have a shortage of workers, but right now we have a shortage of people who want to work.