In an earlier post Kash gave some data on declining labor force participation, a decline that is particularly sharp among men and people with a high school degree or more education. We don’t really have an explanation for the pattern, though one theory is that people are going back to school — basically building up human capital while waiting out the bad times (Matt Y. and a number of CalPundit commenters second this theory.)
The economists over at Economists for Dean have what is likely another big part of the explanation: rising disability claims. When a worker claims disability, they are not counted as part of the labor force, and disability claims are up a lot. Economists for Dean cite a recent NYT Op/Ed by Austin Goolsbee that addresses this point:
Research by the economists David Autor at the Massachusetts Institute of Technology and Mark Duggan at the University of Maryland shows that once Congress began loosening the standards to qualify for disability payments in the late 1980’s and early 1990’s, people who would normally be counted as unemployed started moving in record numbers into the disability system — a kind of invisible unemployment. Almost all of the increase came from hard-to-verify disabilities like back pain and mental disorders. As the rolls swelled, the meaning of the official unemployment rate changed as millions of people were left out … From 1999 to 2003, applications for disability payments rose more than 50 percent and the number of people enrolled has grown by one million.