Disability And Participation

Mar. 18, 2018 1:05 PM ET45 Comments
Lance Brofman profile picture
Lance Brofman


  • Labor force participation rebounded sharply in February 2018, raising hopes that the Federal Reserve might be less likely to raise rates as fast as some predict.
  • If labor force participation had recovered after the 2007-2009 recession, similar to what happened in all previous recessions, the labor force and the unemployment rate would be much higher now.
  • Our view is that a major reason why labor force participation did not recover this time was the large number of dubious and fraudulent disability claims filed.
  • As part of the legislation that that bailed-out the Social Security Disability Trust Fund, various reforms were enacted, such as requiring medical evidence for disability claims.
  • We believe that some of those reforms were responsible for the decline in disability rolls and the commensurate increase in the labor force. This could reduce the prospects that tightness in the labor market will exacerbate inflation.

In July, 2015 we published a report titled "Disability's Destabilizing Impact on the Labor Market". In that report we noted that labor force participation historically has behaved cyclically within a gently declining trend. Participation consistently tended to fall during recessions and rise during economic recoveries as job prospects improved. In this most recent business cycle while the participation rate fell as expected during the recession phase, it continued falling throughout the recovery.

Many analysts sought to rationalize this movement by pointing to the aging population and changes in societal norms such as women's roles. These are undoubtedly factors. But our report suggested that another factor may have adversely affected participation, namely a huge increase in the numbers applying for disability benefits and thus leaving the labor force.

In our earlier report we noted a CBS "60 Minutes" segment that quoted employees of the Social Security Administration and their administrative law judges, who asserted that millions of people were being recruited by lawyers to make fraudulent claims. One such judge said "if the American public knew what was happening, half would be outraged and the other half would apply for benefits".

One precipitating factor may have been the failure of congress to extend unemployment benefits at the end of 2013. Many of those whose benefits were exhausted may have responded to a multitude of advertisements urging potential beneficiaries to apply for benefits on dubious and fraudulent bases. At the time the government had to effectively accept any claim while it was also government's responsibility to remit legal fees to attorneys of those who filed for disability and appealed any adverse decision. It is plausible that those who went from unemployment to disability may have instead reentered the workforce since unemployment insurance requires beneficiaries to actively seek employment or retraining.

Chart I

This article was written by

Lance Brofman profile picture
Note: In 1996 Fundamental Portfolio Advisors and myself were subject to civil litigation by the SEC which resulted in deregistration and a permanent bar from the securities industry. - Ph.D. economics and Finance MBA finance NYU) Colorado Technical University Professor – courses: Applied Managerial Finance (Graduate Level), Microeconomics, Macroeconomics., Previous: Globe Institute of Technology Professor – Economics and Finance, Head of Business Department International Finance European School Of Economics (New York) Professor – Economics (Graduate Level) Courses taught: Microeconomics Metropolitan College of New York Professor – Economics, Banking and Finance Courses taught: History of Economic Thought, Macroeconomics, Money and Financial Institutions World Gold Council Consultant Economist New York, NY • Constructed econometrics relating to gold's role as a portfolio diversifier primarily aimed at institutional investors. • Focused on the embedded optionality of gold in terms of its relation to other investment assets and economic fundamentals such as inflation and business conditions. Freenet, Inc. Founder Internet Startup company with investment advice websites. Fundamental Portfolio Advisors, Inc. Chief Portfolio Strategist – Founder • At the predecessor company I started the New York Muni Fund, the first single state triple tax-free municipal bond fund. • I took the fund from a one-employee start-up where I performed every function to a family of mutual funds which had five funds with total assets above $300 million and which did all of its distribution and transfer in-house. • I wrote the initial prospectus and was responsible for managing the portfolios of what eventually grew to be a family of 5 mutual funds. • Was chief economist for parent company’s brokerage firm. • Involved on the buy-side in the development and monitoring of various structured municipal finance products. Worked with major issuers such as New York City and major investment banks such as Merrill Lynch and Goldman Sachs. • Submitted a U.S. Patent for a portfolio management system for mutual funds involving derivatives. A. Gary Shilling & Co. Senior Economist – Economic consulting and forecasting. Both macro and micro. • Clients included: Emerson, Castle & Cooke, Cooper Industries I was the author of the 1979 study commissioned by the U.S. Government Interstate Commerce Commission, which calculated the expected economic impact of trucking deregulation. White, Weld & Co, Inc. Economic analyst • White, Weld was the sixth largest investment banking and brokerage firm when Merrill Lynch bought it. • Extensive work was done on the All-American Pipeline Proposal to tap the Alaskan Gas Reserves. • The economics department of White, Weld formed A. Gary Shilling & Co. at the time of the Merrill Lynch merger. American Stock Exchange Economic analyst Degrees: New York University June 1978 Ph.D. Economics/Finance • Ph.D. dual field, economics and finance. • Doctoral dissertation was in contingency claims (options) theory June 1973 MBA with concentration in economics and finance NYU Engineering School June 1971 Bachelor of Science - Nuclear Engineering Published works Analysis of the Embedded Inflation Optionality in Gold Prices. World Gold Council, 2000. New York, N.Y. The Economic Impact of Trucking Deregulation. Interstate Commerce Commission, 1979, Washington D.C. I was an author of the textbook: 'Global Financial Management' Words of Wisdom, Schaumburg, IL. Dec.2015 ISBN 978-1-934920-46-6,

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Please note that this article was written by Dr. Vincent J. Malanga and Dr. Lance Brofman, with sponsorship by BEACH INVESTMENT COUNSEL, INC., and is used with the permission of both.

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