Shocker? If you give folks incentive not to work, many stop working

By David McElroy · March 25, 2013

Why do people seem shocked to find out that if you give people incentives not to work, many of them are going to take advantage of that if they can get away with it?

This American Life has an episode this week about the explosive growth of the $200-billion-a-year federal disability program, but the reporter and host seem shocked that people could be doing what the system gives them incentives to do. Even after an hour of reporting — in which there was discussion of poverty, job prospects and more — there wasn’t any mention of the simple economic fact that people do what they have incentives to do.

This episode is reported by NPR’s Planet Money, and the reporter seems to be going out of her way to come up with as many semi-legitimate excuses for the problem as possible. Overall, she sounds like a progressive liberal who’s confronted with evidence that a progressive government program doesn’t work — and she’s trying to avoid offending other progressives by pointing that out.

(Other progressive are offended, though. The left-wing organization Media Matters for America has blasted back at the allegedly “error-riddled story.”)

The piece goes to great lengths at times to attempt to explain away the problem as a simple matter of poor people turning to the disability program because they have no other choices. What the reporter doesn’t seem to understand is that people react to incentives. If they’re going to starve or be homeless in the place where they are (with the skills they have), people tend to find a way to do something about it — whether that entails migrating or learning something new.

People might prefer to stay in the place where they live. They might prefer not to learn something new. They might prefer not to step into a world they don’t know. But if there are no alternatives, they do those things and find a way to survive. When someone is standing there saying, “Here. Take this check and don’t do anything in exchange for it,” they no longer have the incentives to find a way to make a change.

There are about 14 million people who get federal disability checks today, and it’s costing taxpayers roughly $200 billion each year. Some of those people are truly disabled within the original meaning of the program. Even if you assume it’s the government’s role to provide for those people, though, it’s clear that what’s happening is far beyond what the program was designed to be. It’s clear that it’s become just another old-fashioned welfare program that puts people on the dole for life.

Few people consciously decide that they’re going to commit fraud to collect government checks, and those people who consciously commit fraud aren’t the ones I’m talking about. I’m talking about the people who could find another way to support themselves, but have no incentive to, simply because they can collect checks and scrape by without doing a thing in return. (And if they can get young children onto the program for having “learning disabilities,” the payments are higher.)

You can have a legitimate conversation about how to help people who can’t work to support themselves — whether you believe in government having a role in that or not — but you can’t have a serious and honest conversation about it without talking about incentives. People tend to do what they have financial and social incentives to do. It doesn’t necessarily mean they’re bad or lazy or anything like that. Sometimes they are. Sometimes they’re not.

But if you make it easy for people to receive a check rather than work a minimum-wage job which pays only slightly more than the check brings, almost everybody is going to respond to rational financial incentives. They’re going to take the check — and they’re going to be dependents for life, whether they meant to be or not.

Note: For a much better discussion of the crisis in the disability program, check out an episode of EconTalk from last August which took a better look at the problem.

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