Labor Market Disability: Implications for the Unemployment Rate

Abstract

This paper investigates the extent to which unemployment, particularly among older males, is hidden by the welfare system. It is argued that the official unemployment rate has fallen because of a decline in participation rates among older males since 1972, and a significant proportion of these can be accounted for by the increase in the percentage of males receiving the Disability Support Pension and the Mature Age Allowance. These males are considered the Labor Market Disabled, since the principal cause of them being on welfare is the weakness of the labor market in which they have traditionally found employment. The unemployment rate is then reconsidered after including the LMD into the calculation, producing a more pronounced hysteresis affect over successive business cycles. It is argued that active job creation programs are required to move these people from welfare to work.