COVID, Disability And Labor Force Participation

Nov. 30, 2021 12:28 AM ET2 Comments
Lance Brofman profile picture
Lance Brofman
9.31K Followers

Summary

  • Long Covid may produce a significant decline in labor force growth.
  • Labor force growth after the previous recession was very weak.
  • When extended unemployment benefits were cut off, many filed for disability benefits, rather than returning to the labor force.
  • As part of the Disability Trust Fund Bailout, reforms were enacted to the disability program, that might prevent a repeat the earlier experience.
  • Long Covid is now classified as a disability if it substantially limits one or more major life activities. New disability applications should be watched closely.
COVID-19 long covid symbol. A young strong man in a white kimono for sambo, jiu jitsu and other martial arts with a blue medical gloves. White card with words "long covid". Long covid concept.

Dzmitry Dzemidovich/iStock via Getty Images

Pandemic era income support programs are largely over. As of September 6, 2021, Pandemic Unemployment Assistance, Pandemic Emergency Unemployment Compensation, Extended Benefits, $300 Extra Federal Pandemic Unemployment Compensation, and the $100 Mixed Earner Unemployment Compensation programs all expired. The Biden administration supported the termination of these programs and only a few Congressional Democrats objected.

This termination of supplemental benefits was not nearly as contentious as the cutoff of benefits that occurred in 2013. Indeed, even before the September 6 date some state governors had already ended the $300 Extra Federal Pandemic Unemployment compensation program even though the cost was borne entirely by the federal government. Those state governors were responding to complaints from the business community which blamed the extra benefits for difficulties that were being encountered in hiring.

In 2013 the Obama administration and its congressional allies strenuously supported efforts to maintain extended jobless benefits. At the time the House passed legislation to extend benefits, but the Senate could never garner quite enough votes to avoid a filibuster. Thus, on December 28, 2013, the Federal Emergency Unemployment Compensation Extended Benefit program expired. Until this date most states provided jobless befits for between 63 and 73 weeks. On the terminal date, all state limits reverted to between 20 and 26 weeks, affecting about 4.9 million people who had been receiving the extended benefits.

In 2013, those who opposed extending jobless benefits argued that the budget consequences were negative, and that since the 2008-09 recession ended years earlier, the time was way overdue to discontinue this largess. Indeed, extensions of benefits had already been passed on four previous occasions. There was some hope that one consequence of eliminating extended benefits would be increased labor force growth and participation. This proved to be an unfounded expectation. As we pointed out in our report titled Disability and Participation, dated March 2018, many of those whose unemployment benefits were exhausted may have responded to a multitude of advertisements urging potential beneficiaries to apply for benefits on dubious and fraudulent bases.

That report indicated that disability rolls expanded much faster than what demographics would imply, and in contrast to past cyclical patterns. Further, the labor force participation rate for prime working age males – which would not be affected by demographics or changing social norms – fell sharply to as low as 88% in 2015 from a 90 plus percent baseline.

As might be expected, the disability trust fund was severely depleted such that by 2016 it was forecast the fund would be exhausted. The only recourse other than reducing benefits was to transfer $150 billion from the Social Security trust fund to the disability trust fund. Many fiscal conservatives objected to such an unconditional bailout. As a result, in the Bipartisan Budget Act of 2015, reforms to the disability program became a precondition for the bailout. Reforms were to be phased in over the 2017-2022 period.

We do not think it has been a coincidence that the labor force participation rate increased steadily over the 2017-2019 period. For prime working age males, the participation rate rose from 88.5% to 89.3% in the 2017-2019 period and the aggregate participation rate rose by 3 percentage points to nearly 65%.

Labor force participation collapsed during the pandemic induced 2020-2021 economic collapse. So now a key question is whether improving economic conditions coupled with the elimination of income support programs will increase labor force participation. To date, labor participation has barely budged from its pandemic low of 61.5%. But income support programs ended only two months ago, and so incoming data will be scrutinized for the impact.

The most important reform to the disability reform agreement of 2016 was a requirement of medical evidence for eligibility. At the very least, this was thought to work to slow down the rate at which sketchy applications for disability benefits are filed. Pre-pandemic labor data support this hypothesis. The accompanying chart and table indicate that the number of disability applications hit a high in October 2021 both for the month and on a three-month average.

We will be watching to see if the reforms enacted in the Bipartisan Budget Act of 2015 limit the degree that the unemployment benefit cutoff spurs disability applications. An unscientific anecdotal examination of late-night cable TV advertisements by disability law firms is far less common than in the earlier period. This is potential good news. But countering this, the largest study to date of “long” Covid estimated that about 25% of symptomatic and asymptomatic Covid-19 patients reported new health problems following their initial diagnosis. It is unclear how long those problems will last. However, the Biden administration has already anticipated the possibility of a surge in disability rolls due to Covid-19.

Long Covid can now be classified as a disability if it substantially limits one or more major life activities, according to new guidance published by the Department of Health and Human Services and the Department of Justice. On July 27, 2021, in the White House Rose Garden, the President announced that Americans enduring long-term health effects from Covid-19 would be eligible for the same government benefits as other disabled people. A surge in the disability rolls could dash hopes for a recovery in labor force participation and an easing of current labor shortages. Stay Tuned!

Chart I The number of applications for disabled-worker benefits

Source; Charts created by author with data from Social Security Administration

Table I The number of applications for disabled-worker benefits

Applications1

3-mo avg

Receipts2

3-mo avg

2020 Aug

139,920

96,238

2020 Sep

139,980

87,332

2020 Oct

176,326

152,075

121,675

101,748

2020 Nov

125,559

147,288

86,741

98,583

2020 Dec

126,418

142,768

88,645

99,020

2021 Jan

160,654

137,544

104,354

93,247

2021 Feb

135,139

140,737

92,680

95,226

2021 Mar

139,940

145,244

93,304

96,779

2021 Apr

170,141

148,407

109,885

98,623

2021 May

140,484

150,188

91,487

98,225

2021 Jun

134,043

148,223

84,509

95,294

2021 Jul

177,470

150,666

111,224

95,740

2021 Aug

151,403

154,305

91,442

95,725

2021 Sep

144,773

157,882

95,672

99,446

2021 Oct

186,026

160,734

131,947

106,354

Source; Table created by author with data from Social Security Administration

1Applications is for disabled-worker benefits - The number of applications is for disabled-worker benefits only and, as such, excludes disabled child's and disabled widow(er)'s benefits. These applications are those received at Social Security field offices, teleservice centers, and claims filed electronically on the internet. Applications ultimately result in either a denial or award of benefits. These counts include applications that are denied because the individual is not insured for disability benefits.

2Receipts at Disability Determination Services - Receipts at State Disability Determination Services (DDS), Federal Disability Units, Disability Processing Branches, and Extended Service Team Sites for an initial evaluation of whether the claimant's disability meets the definition of disability as set forth in the Social Security Act and appropriate regulations.

This article was written by

Lance Brofman profile picture
9.31K Followers
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 stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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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