How helping disabled people find employment affects the job market

Policy makers have long been concerned with helping people on disability benefits find some employment as this group has grown dramatically in recent decades. In the UK, as in several other countries, there are now many more people on disability benefits than on unemployment benefits. The chances of leaving disability benefits once someone is  enrolled is low and although many disabled people cannot work at all, many others would like to have some access to the labor market, such as part-time employment.

Introducing performance rewards for public employment service staff may be a cost-effective way to help the disabled find jobs. The UK Jobcentre Plus reform introduced modern management practices into the welfare system. Similar incentive schemes have been associated with substantial productivity gains in the private sector. The reform offered caseworkers greater career rewards if they successfully placed benefit recipients into work. Jobcentre Plus was introduced at different times in different districts between 2001 and 2008, so this staggered timing enabled researchers to implement a thorough examination of the impact of the policy.

In the Jobcentre Plus system, job placements of disability benefit recipients were rewarded more than job placements for other benefits recipients. For example, a caseworker received about three times as many ‘reward points’ for helping a disabled person into work as for helping a short-term unemployed person into work. Obtaining these points helped improve the career prospects of caseworkers.

There were big disruption costs from the policy – new IT systems had to be installed, new building work took place, offices and people were moved about. Unsurprisingly, this distracted caseworkers from their day to day jobs and gave them less time to focus on working with benefit claimants. During this adjustment period, the disruption severely affected the unemployed who became less likely to stop claiming benefits and also the disabled. But the new rewards system helped offset the negative disruption effects on the disabled group (see Figure 1).

After three years, as things settled down, the policy significantly helped disabled people, while the negative impact on unemployed people disappeared. These patterns are consistent with the idea that caseworkers placed their efforts on finding disabled people jobs, and diverted their efforts away from the those claiming unemployment benefits. In short, there was a long-term positive effect of finding employment for disability recipients, but a short-term negative effect from the organizational disruption.

The size of the policy’s effect was large – a 10% fall in those on disability benefits in the long-run. And strikingly, the growth in the total disability rolls in the UK came to a halt in the early 2000s, followed by a fall thereafter. About a third of this decline can be attributed to the effect of the policy.

Overall, the Job Centre Plus reform was cost-effective. The higher tax revenues and reduced benefit payments massively outweighed the cost of the reform. In the short run, however, the reform leads to substantial disruption and the job-finding rate among the unemployed drops by about 5% in the months immediately after the reform (see Figure 2).

This disruption effect implies that the program only became fully cost-effective six years after the reform was introduced. The implication of this dynamic is that it requires a policy maker to have a long time horizon. A minister focused on “quick wins” before he or she is out of power in two or three years, will be reluctant to embark on such reforms that take so long to show a pay-off. This may be why welfare reforms in general are so hard to implement. They require the political backbone for a long-run perspective, whereas our culture seems be unable to look beyond the latest headlines.

Featured image credit: JobCentre Plus by Andrew_Writer. CC by 2.0  via Flickr.