Tying SIBs to Job Creation

We need to find a new way of product and service differentiation for our social impact bond project.  The reason being if the only point of innovation is a new payout mechanism, it is incredibly easy to replicate.  A competitive advantage is never sustainable if the barriers to entry are low and the potential growth potential is high.  So it occurred to me that we needed to find a competitive advantage though further segmenting our target market.  How are we going to do this? I just so happened to stumble upon an interesting fact that piqued my interest.

“Since the economy began its slow, slow recovery in late 2009, we’ve been averaging about 150,000 jobs created per month.” “In that same period every month, almost 250,000 people have been applying for disability.”

This was incredibly surprising to me given that more people have been applying for disability welfare than actually getting jobs.  Why is this occurring in the United States? Here are more surprising facts regarding the rise of individuals seeking disability insurance which was uncovered by Public Radio International a few weeks ago.

•   The federal government spends more money each year on cash payments for disabled former workers than it does on food stamps and welfare combined; America’s two largest disability programs, including health care for disabled workers, costs taxpayers $260 billion a year

•   In some parts of the country, such as Hale County, Alabama, one out of every four working-age adults collects a disability check

•   As of 2011, 33.8% of newly diagnosed disabled workers cited “back pain and other musculoskeletal problems” as their reason for being unable to work.  In 1961, the top reason for being disabled was “heart disease, stroke”

•   Disabled workers do not get counted in the unemployment figures. If they did, the numbers would be far higher

•   Less than 1% of people who went on disability at the beginning of 2011 have returned to the workforce

•   The Supplemental Security Income (SSI) program—which covers kids and adults—has exploded.  SSI is now seven times larger than it was 30 years ago.

This last fact is particularly astonishing in that more kids are going on disability than ever before.  There are a variety of reasons for this new trend, and the federal government is searching for new ways to cut these expenses down. Here is an overview of the growing spending on disability payments as a function of welfare expenditures:

So how can our SIBs deal with the growing government spending on disability? We partner up with organizations that help those on welfare attain jobs, rather than going on disability. The government has buy in to reduce the amount of disability spending, and investors will see returns faster as it is easy to measure government spending on disability year over year.  Furthermore society is better off because more individuals are employed.  Our SIBs will specifically target high risk individuals who are fit to work but do not have employment options. This is a relatively new concept that needs to be explored, but it is a promising new start for a SIB application.  

Sources:

http://www.nytimes.com/2012/04/25/business/economy/disability-insurance-causes-pain.html?pagewanted=all&_r=0

http://www.breitbart.com/Big-Government/2013/03/25/Govt-Spends-More-On-Disability-Than-Food-Stamps-And-Welfare-Combined