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COLLEGE STATION Prospects for robust economic growth in America will be hampered as long as the relative attractiveness of work declines, conclude two Texas A&M University economists in a new article titled “Where Have All The Workers Gone?”
While noting the country is recovering from the recession that began in 2007 and that real personal income has almost recovered to its previous peak, they point out the two “most telling indicators” of a recovery — per-capita income excluding transfer payments and the employment ratio of prime-aged adults — are both at least five percent lower than their peak levels. Transfer payments represent redistribution of income through governmental programs that include Social Security.
The two economists, Andrew J. Rettenmaier and Thomas R. Saving, say part of the problem stems from more would-be workers taking steps to qualify for Social Security disability provisions, adding the situation could be compounded by soon-to-be implementation of parts of the Affordable Care Act.
“Reducing the returns to not working requires a substantial change in the direction of recent public policy,” contend Saving, director of the Private Enterprise Research Center at Texas A&M, and Rettenmaier, the center’s executive associate director. “An overhaul of eligibility rules for the Social Security disability program is a starting point.”
While the rise in the prevalence of workers turning to disability benefits or other transfer payments provided a partial accounting of what happened to those who are no longer employed, the researchers say that does not explain why they are not employed.
“Individuals face the decision to remain unemployed, look for work, pursue a disability claim or consider the benefits of other non-work options,” they observe, adding that more of them are opting to go the disability-claim route.
The formula for calculating disability benefits has not changed in recent years, so a rise in the value of benefits is not the explanation for the greater emphasis in pursuing that option, they surmise.
The Affordable Care Act — often called “ObamaCare” — could contribute to even more workers opting to drop out of the workforce, Saving and Rettenmaier say.
“Several provisions of the about-to-be-implemented Affordable Care Act reduce the incentives to work while raising the benefits of not working,” the economists state in their article that appears in PERCspectives on Policy, a newsletter published by the Texas A&M center. “For example, some workers will exit the labor force as a result of the potential availability of subsidized health care not tied to a job.”
They note — and question why — the labor-force statistics for the working-age population show a general decline in employment since 2000 of both prime-aged men and women, reversing a 50-year trend in which employment of women was on the rise while employment of men was only gradually declining.
Typical retirement decisions are not driving the decline, they assert, although some of it can be attributed to the effects of early retirements by members of the “baby-boom generation,” who were between the ages of 36 and 54 when the employment ratio peaked in 2000.
“Policy-makers have some tough choices to consider if they want to see prime-age Americans return to work,” the economists add in their article. “They have several policy tools that increase the returns to work and reduce the return to not working.
“The most straightforward way to increase returns to work is to move away from labor taxes in favor of consumption taxes.”