Hiring subsidies for people with disabilities: Do they work?

While the proportion of working-age individuals relying on Disability Insurance (DI) benefits has increased, the labour market integration of people with disabilities remains very low. In the OECD, the mean DI beneficiary rate among working-age individuals was 5.8% in 2008 and the employment rate of people with disabilities for the same countries in the late-2000s was 43%, compared to 75% for their counterparts without disabilities.

In response to these trends, there is international agreement on the need to transform a benefits-based disability policy into an activation policy aimed at facilitating the integration of individuals with partial disabilities into the labour market. One such measure is offering a hiring subsidy in which the government makes direct payments to the employer who hires a person with disability, with a view to increasing the demand for these workers and, thus, their employment outcomes. Such subsidies can be classified as part of a more general type of targeted employment subsidies aimed at promoting employment among specific groups (low-skilled youth, women, older individuals, social assistance recipients, etc.). Targeted wage subsidies to employers are one of the active measures for Employment Insurance recipients in Labour Market Development Agreements for Persons with Disabilities signed between the federal government and provinces and territories, including with BC.

The empirical evidence evaluating the effectiveness of disability subsidy schemes is scarce and inconclusive. This paper, by the Spanish researchers Sergi Jimenez-Martin Arnau, Juanmarti Mestres and Judit Vall Castello, addresses this gap in knowledge by rigorously evaluating the effectiveness of hiring subsidies in Spain. It takes advantage of timing differences in the implementation among the different Spanish regions of a subsidy scheme introduced over the period 1990-2014. Using these differences, the researchers econometrically estimate the impact of the scheme on (1) the probability of unemployed DI beneficiaries transiting to temporary or permanent employment and of DI beneficiaries in temporary employment converting to permanent employment; and (2) the tendency of individuals to enter the DI program.

The results of their analysis show that the introduction of the subsidy scheme is in general ineffective in encouraging employment transitions, and in some cases is in fact associated with an increased probability of transiting to DI. This is more true of men than women, among whom the subsidy has a significant and positive effect on women’s transitions from temporary to permanent employment.

The authors demonstrate that an employment protection component built into the scheme requiring employers to maintain the subsidized worker in employment is effective in preventing unemployment once they are hired. However, this comes at the cost of the job seeker being less likely to be hired under a permanent rather than a temporary contract, particularly for younger individuals. This finding suggests that employment protection measures may be reducing the effectiveness of hiring subsidies in encouraging transitions to employment for disability clients.

This report will of interest to policy makers and employers interested in understanding how best to encourage the hiring of people with disabilities through different policy measures.

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