How helping disabled people find employment affects the job market – John Van Reenen, Barbara Petrongolo, Felix Koenig

John Van Reenen, Professor of Applied Economics at MIT Sloan School of Management

From OUP Blog

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).

Figure 1: The Effects of Job Centre Plus on increasing the numbers leaving Disability Benefit (IB). Used with permission from the authors.

The timing of the impact of the Job Centre Plus policy introduction in an area (district) is shown by the vertical line. On the horizontal axis “t” is in quarters, so “t+2” is six months after policy introduction and “t-2” is six months before policy introduction. The vertical axis is our estimated impact on the percentage change in outflow rates from Incapacity Benefit (IB, the UK’s main benefit for the disabled at the time), so 0.1 indicates a 10% increase in outflows (for example, from 20 percent per quarter to 22 percent) in the treated districts relative to the untreated districts. The solid line is the estimated treatment effect and 95% confidence intervals are shown in dashed lines.

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.

Read the full post at OUP Blog

John Van Reenen is the Gordon Billard Professor of Management and Economics at the MIT Sloan School of Management.

Barbara Petrongolo is Professor of Economics at Queen Mary University, Director of the CEPR Labour Economics Programme and Research Associate at the Centre for Economic Performance of the London School of Economics.

Felix Koenig is a Postdoctoral Fellow at Princeton University

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