Glaeser on Declining Labor Force Participation
Edward Glaeser has some sensible suggestions to deal with the declining labor force participation rate, which he links to easier access to disability insurance:
The political response to the low labor-force participation is to offer policies aimed at job creation. The right favors tax cuts. The left favors subsidized help through building roads and other infrastructure, and favoring particular sectors, such as “clean energy.”
I’m skeptical that either approach can succeed, especially in helping the lower-skilled. Most sensible government investments require well-trained employees, such as engineers, not high school dropouts. Even if tax cuts help private-sector activity, there is little guarantee that businesses will start hiring from the bottom of the labor market.
We can do better by replacing the archaic system we have now with ones that offer better incentives to work. We have too many distinct programs (unemployment insurance, food stamps, housing vouchers) that penalize earnings, collectively creating a huge implicit tax that discourages work among the poor.
Duggan and David Autor, a Massachusetts Institute of Technology economist, have proposed reforming disability insurance in ways that encourage companies to keep employing disabled workers and impose higher costs on those that produce more disabled workers.