| 2.2 Million Go On Disability Since Mid-2010; Fraud Explains Falling Unemployment Rate; Will Higher Disability Taxes Fix the Problem? Posted: 05 May 2012 11:53 AM PDT Since mid-2010, precisely the time millions of US citizens used up all of their 99 week of unemployment insurance, disability claims have risen by 2.2 million. Those on disability are not counted in the workforce and are not considered unemployed. Please consider Disabled Americans Shrink Size of U.S. Labor Force The number of workers receiving Social Security Disability Insurance (SSDI) jumped 22 percent to 8.7 million in April from 7.1 million in December 2007, Social Security data show. That helps explain as much as one quarter of the decline in the U.S. labor-force participation rate during the period, according to economists at JPMorgan Chase & Co. and Morgan Stanley.
The participation rate -- the share of working-age people holding a job or seeking one -- was 63.8 percent in March after falling to a three-decade low of 63.7 percent in January. Disability recipients may account for as much as 0.5 percentage point of the more than 2 point drop since the end of 2007, the economists calculate, and that contribution could grow when some extended unemployment benefits expire at the end of this year.
"How we measure and understand what's going on in the economy can be influenced by the degree to which various public- support programs are available and being used," said Michael Feroli, chief U.S. economist at JPMorgan in New York. "With a rising number of disability beneficiaries, there are both lower unemployment rates and lower participation rates."
More than 99 percent of all SSDI beneficiaries remain in the program until retirement age, David Greenlaw, a managing director in New York at Morgan Stanley, wrote in a March research note, citing government data. The program provides an average of $1,111 in monthly income to eligible workers with a physical or mental impairment that will last at least 12 months or result in death, according to Social Security.
Unemployment insurance requires that applicants search for job opportunities, while disability insurance requires they be unable to work.
Lax Screening Procedures
Less-stringent screening procedures, more attractive benefits and a waning need for less-skilled workers have bolstered SSDI rolls.
In addition, "difficult-to-verify disorders," including muscle pain and mental illness, more easily qualify for SSDI under program reforms, [David] Autor [economist at Massachusetts Institute of Technology] wrote in a 2011 paper.
Based on current trends, 7 percent of the nonelderly adult population could be receiving disability benefits by 2018, Richard Burkhauser and Mary Daly wrote in the spring issue of the Journal of Policy Analysis and Management. That's two years after the SSDI program will run through its trust fund, according to an April report by the Social Security trustees. Costs Increase
Costs Increase
Costs have increased with the rolls: The program spent $132 billion last year, more than twice as much as in 2000. Non-Solutions Richard Burkhauser, a policy professor at Cornell University, and Mary Daly, associate research director at the Federal Reserve Bank of San Francisco, think the solution is to raise taxes on businesses with larger shares of people on disability. So does David H. Autor in a white paper The Unsustainable Rise of the Disability Rolls in the United States: Causes, Consequences, and Policy Options. While the paper provides a clear understanding of the problem, their proposed solutions, centering around more taxes, would make it more likely that businesses fire workers before they go on disability, make it more likely businesses will seek younger, not obese workers in excellent health in the first place. While I am sure that happens today, nothing like incentives from the Fed to increase that pressure on businesses. How About Stopping the Fraud? Autor's proposals dot not go far enough to stop what is clear fraud. Indeed, Autor explicitly states " A second lesson, evident from the drug and alcohol addiction experience, is that highly motivated applicants in many cases will eventually succeed in obtaining benefits, particularly because of the 1984 liberalization of the criteria for pain and mental illness. While this latter observation highlights that the SSDI disability determination system is badly in need of modernization, my main conclusion is that better gatekeeping cannot be the centerpiece of effective SSDI reform." I do not buy that, nor do I buy the excuse " Revoking benefits en masse from needy beneficiaries is not politically viable, whether or not this would be desirable from an efficiency standpoint." What about the "not-needy, fraudulent beneficiaries"? Moreover, this country better come to grips about what is " politically viable" before government percent of GDP soars to 56% like it is in France, or worse yet, the extremely unstable mess in Greece or Spain. From an " efficiency" standpoint one has to be nuts to not to want to stop the fraud. And throwing money at alcoholics, drug addicts, and those claiming mental stress does nothing but increase those number of claims. Mental Illness I talked about mental illness and fraud on February 20, 2012 in Disability Fraud Holds Down Unemployment Rate; Jobless Disability Claims Hit Record $200B in January Pre-crisis, mental illness constituted about 33% of claims. Now it's 43%. The cost is staggering, over $200 billion a year. I did some calculations in the above link and this is what it looks like with a mere 10% rate of fraudulent claims. Unemployment Rate with 10% Fraud
- 10% of 27.5 million is 2,750,000.
- The civilian labor force would rise to 157,145,000 from 154,395,000
- The number of unemployed would rise to 15,508,000 from 12,758,000
- The resultant unemployment rate would be 15508/157145 = 9.9%
Is there anyone who thinks disability fraud is less than 10%? If not, then the unemployment rate would be at least 9.9% assuming those in fraudulent claims started looking for work. Those numbers are as of the February BLS jobs release and would undoubtedly be worse now given Friday's Payroll Disaster: Nonfarm Payroll +115,000 Establishment Survey But -169,000 Household Survey, Labor Force Drops by 342,000  Amazing Achievement is Fraud In the last year, the civilian population rose by 3,638,000. Yet the labor force only rose by 945,000. Those not in the labor force rose by 2,693,000. In the last month, actual employment fell by 169,000, but the unemployment rate dropped by .1%. That is an amazing "achievement" to say the least.
Since Mid-2010 2.2 Million Went on Disability  Notice the jump in claims after the recession was allegedly long-over. The timing coincides with unemployment benefits expiring at 99 weeks. Supposedly higher taxes will fix the problem. I say "nonsense". Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| China's Population Poised to Crash in Perfect Demographic Storm Posted: 05 May 2012 12:19 AM PDT Those who still have not gotten the message that China's expected growth rate of 7% is not going to happen are advised to consider the viewpoints of Nicholas Eberstadt who studies demographics for the American Enterprise Institute. Bloomberg covers Eberstadt's demographic projections in an interesting article on China's Pending Population Crash Today's most important population trend is falling birthrates. The world's total fertility rate -- the number of children the average woman will bear over her lifetime -- has dropped to 2.6 today from 4.9 in 1960. Half of the people in the world live in countries where the fertility rate is below what demographers reckon is the replacement level of 2.1, and are thus in shrinking societies.
As Eberstadt points out, we can make predictions about the next 20 years with reasonable accuracy. The U.S.'s traditional allies in western Europe and Japan will have less weight in the world. Already the median age in western Europe is higher than that of the U.S.'s oldest state: Florida. That median age is rising 1.5 days every week. Japan had only 40 percent as many births in 2007 as it had in 1947.
These countries will have smaller workforces, lower savings rates and higher government debt as a result of their aging. They will probably lose dynamism, as well.
All these effects will, in turn, almost certainly make these countries even less willing than they already are to spend money on their armed forces. Americans who want Europe to bear more of the free world's military burden -- or even provide for its own defense -- are probably going to be disappointed. So will those who expect Europe to take on humanitarian missions. It won't even be able to maintain its current weight in future debates about the values of peace and democracy.
China's rise over the last generation has been stunning, but straight-line projections of its future power and influence ignore that its birthrate is 30 percent below the replacement rate.
The Census Bureau predicts that China's population will peak in 2026, just 14 years from now. Its labor force will shrink, and its over-65 population will more than double over the next 20 years, from 115 million to 240 million. It will age very rapidly. Only Japan has aged faster -- and Japan had the great advantage of growing rich before it grew old. By 2030, China will have a slightly higher proportion of the population that is elderly than western Europe does today -- and western Europe, recall, has a higher median age than Florida.
China's Challenges
China, notoriously, has another demographic challenge. The normal sex ratio at birth is about 103 to 105 boys for every 100 girls. In China, as a result of the one-child policy and sex- selective abortion, that ratio has been 120 boys for every 100 girls. From 2000 to 2030, the percentage of men in their late 30s who have never been married is projected to quintuple. Eberstadt doesn't believe that having an "army of unmarriageable young men" will improve the country's economy or social cohesion.
Foreign-policy thinkers can often lose sight of demographic trends, Eberstadt says, because from a policy makers' view "they tend to look really glacial. If it's not happening in the next 48 to 72 hours, it's not in the inbox." But "population change gradually and very unforgivingly alters the realm of the possible." World Population Prospects and the Global Economic Outlook Enticed by that lead-in, inquiring minds are digging further into the views of Nicholas Eberstadt. Please consider the following snips from World Population Prospects and the Global Economic Outlook, a 42 page working paper by Nicholas Eberstadt. China
By almost all accounts today, no major economy has more radiant prospects for the coming decades than China. Such assessments are predicated on extrapolation of the country's extraordinary recent record of performance into the future. Over the past generation, China's economic transformation has been nothing less than dazzling. In the three decades following Deng Xiaoping's 1978 moves toward overarching systemic reform, by Angus Maddison's reckoning, China's GDP grew almost ten-fold: averaging an estimated 7.5% growth a year for 30 years—and if we go by other sources, China's growth rates would have been even more rapid. No economy in world history has ever grown so fast for so long. Over this same interim, China also emerged from self-imposed autarky to become a major player in the world economy. Today it is number one in both merchandise exports and in holdings of foreign exchange reserves. In aggregate, China now appears to be the world's second largest economy, edging out Japan last year.
Chinese policymakers confidently predict the country's torrid growth will continue on into the future; Beijing officially forecasts annual growth rates of roughly 7% per year between now and 2030. This rosy prognosis is accepted by many in the world financial community, and even by some of the intelligence and security services that advise Western governments. But there is a major problem with this optimistic reading of China's economic future—it does not seem to take into account the demographic tempests that China will have to weather in the years immediately ahead. A wide sweep of new, powerful and fundamentally unfamiliar demographic forces are now gathering in China in the years ahead, and will buffet the country simultaneously. China is confronting the demographic version of ―the perfect storm,‖ and these new demographic realities may ultimately force us to revise today's received wisdom about ―China's rise.‖
China's future demographic profile will differ substantially from its current population situation, mainly because of the country's low levels of fertility. Although there are some inconsistencies and problems in official Chinese population data, population specialists believe that China became a sub-replacement fertility society about two decades ago—and that birth rates have fallen far below the replacement level since then. The Census Bureau, for example, believes that China's current TFR is about 1.5—over 30% below the level required for long-term population stability.
Figure 4. Projected Population Structure: China, 2010 vs. 2030
In this future China, there would be fewer people under the age of 50 than in China today—and many fewer Chinese in their 20s and early 30s. On the other hand, there would be many more elderly Chinese than today—vastly more, in fact, in their 60s, 70s and 80s.
This dramatic shift in China's population profile has four major economic and social implications for the years immediately ahead. The first is the end of labor force growth. Over the past three decades of hyper-rapid development in China, the country's working age population rose by over two-thirds—growing by an average of about 1.8% a year. By contrast, as we have already seen, China's total working age population is set to fall between 2010 and 2030. (By Census Bureau projections, China's working age manpower will be peaking in 2016—just 5 years from now; by 2030, it stands to be shrinking by almost 1% a year).
Furthermore, as noted above, China's manpower pool will be graying over these years; in fact, by 2030, there would be more than four older (50-64 years) prospective workers for every three younger counterparts (15-29 years)—a complete inversion of the current ratio.19 With a smaller and much greyer Chinese workforce on the horizon, sustaining the growth rates of the recent past would be a truly counterintuitive proposition.
Second, there is the broader issue of rapid and pervasive population aging. Though Chinese authorities may have clamped down on births for three decades, the country will be experiencing a population explosion of senior citizens over the next twenty years (progeny of the pre-population control era). In 2010, about 115 million Chinese were 65 or older; by 2030, the corresponding number is projected to approach 240 million—meaning that China's cohort of senior citizens would be soaring at an average rate of 3.7% per year.
By 2030, according to Census Bureau projections, China's median age will be higher than the USA's—and according to projections by Chinese demographers, over 22% of rural China's population will be 65 or older.
(In aged Italy and Germany today, the corresponding proportion is 20%.) How China's coming tsunami of senior citizens is to be supported remains an unanswered question. As yet, China has no national public pension system in place, and only the most rudimentary of public provisions for rural health care. Meeting the needs of its rapidly growing elderly population, however, will undoubtedly place economic and social pressures on China that no country of a comparable income level has ever before had to face. Five Reasons China's Growth Rate Projections Will Not Happen - Peak Oil
- Unsustainable, very troubled State-Owned-Enterprise (SOE) investment model
- Regime change will shift from investment export driven model to consumption driven model and the transition will be extremely painful
- Crash of China's property bubble
- Demographics
Those are five powerful reasons supporting the thesis China's growth is not sustainable. Any one of them could sink growth prospects. Collectively, they represent an overwhelming obstacle to rosy growth projections. For more on points two and three, including a pair of bets between Michael Pettis at China Financial Markets and The Economist magazine, please see 12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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