What are the consequences of the law for people with physical disabilities?

Responsible researcher: Viviane Pires Ribeiro

Paper Title: Consequences of employment protection? The case of the Americans with Disabilities Act

Authors: Daron Acemoglu and Joshua D. Angrist

Intervention Location: United States of America

Sample Size: Not specified

Big topic: Job Market

Variable of Main Interest: Disabled worker

Type of Intervention: Analysis of the impact of theAmericans with Disabilities Act

Methodology: Theoretical and empirical analysis

The Americans with Physical Disabilities Act requires employers to accommodate employees with disabilities and prohibits discrimination against people with disabilities during hiring, firing and pay. Proponents of this law believe it will make the job market more inclusive without significantly increasing employer costs or reducing employment. In contrast, some social critics point out the possible negative effects it can have on employment. In this intense debate, Acemoglu and Angrist (2001) seek to determine whether such a law actually improved economic conditions for workers with physical disabilities.

Assessment Context

The federal law, called the “Americans with Physical Disabilities Act” (or more specifically, the Americans with Disabilities Act – ADA) was enacted in July 1990 and went into effect in July 1992. Previously, there was no federal law that addressed of employment and wages of workers with disabilities in the private sector. Title I of the ADA initially covered all employers with at least 25 employees. In 1994, coverage was extended to employers with 15 or more employees. Title I requires employers to provide “adequate accommodations” for their workers with disabilities. Examples include allowing wheelchair access, purchasing special equipment for employees with disabilities, and restructuring jobs to allow employees with disabilities to work part-time or from home. Title I also prohibits discrimination against people with disabilities with respect to wages, hiring, firing, and promotion. For example, an employee with a disability must be paid the same amount as a worker without a disability for the same job, and companies cannot take disability into account in hiring and firing decisions.

Proponents of the ADA believe the law will induce businesses to make the investments and modifications necessary to employ workers with disabilities and reduce unwarranted discrimination. In recent years, interest in the performance of disabled people in the labor market has also been fueled by efforts to reduce the number of recipients of disability insurance. On the other hand, critics of the ADA point out that adapting the workplace for people with disabilities can be costly and that accommodation costs and ADA-related litigation can have significant negative effects on employment.

Intervention Details

The study carried out by Acemoglu and Angrist (2001) sought to determine whether the Americans with Physical Disabilities Act actually improved economic conditions for the disabled. Although adequate accommodations cases have attracted greater media attention, most ADA charges relate to wrongful termination. Therefore, it is possible that the ADA acts as a form of employment protection, similar to European termination costs.

The theoretical section of the article uses a standard competitive model to highlight the distinction between accommodation costs and the costs of firing and hiring due to the threat of lawsuits. Although the ADA's provision of appropriate accommodations creates an incentive to employ fewer workers with disabilities, the introduction of hiring and firing costs complicates the analysis. If the threat of ADA-related litigation encourages employers to increase the hiring of disabled people and if the number of employers is not very responsive to profits or costs, the ADA may increase the employment of workers with disabilities as ADA proponents hoped. But when most of the allegations concern wrongful termination and the high costs of adequate accommodations, the ADA is likely to reduce employment of disabled people.

The empirical analysis looks at employment and wages of workers with and without disabilities using data from the 1988-97 March Current Population Survey (CPS). The sample is limited to those aged 21–58, as this group has a strong connection to the labor force. This data is useful for the purposes of the study because the CPS income supplement identifies workers with disabilities and the March CPS has information on company size. Additionally, Equal Employment Opportunity Commission (EEOC) data on discrimination charges by state was also used to connect changes in labor market variables with the incidence of ADA-related collections activity.

Methodology Details

The theoretical consequences of the ADA were explored using a standard competitive model with two types of workers, non-disabled and disabled. Thus, the analysis differs from previous analyzes in two ways. First, the authors develop the argument formally and point out possible general equilibrium interactions. Second, they show that the ADA could increase the employment of people with disabilities because it implicitly subsidizes such hiring.

The impact of the ADA on employment levels was assessed using data on weeks worked during the calendar year prior to the CPS. The wage measure is the average weekly wage, calculated based on annual supplement earnings data. Although the CPS switched from paper questionnaires to computer-assisted interviews in 1994 and the key workforce status questions were also revised at that time, the content of the income supplement was not changed.  

The income supplement variables refer to the previous calendar year, so the sample has data on weeks worked and wages from 1987-96. The CPS disability status question appears to refer to respondents' status at the time of the survey, but actually serves as an initial question that precedes additional disability income supplement questions from the previous year.

Results

Although the ADA aims to increase employment of the disabled, the theoretical net effects are ambiguous. For men of all working ages and women under 40, Current Population Survey data shows a sharp drop in the employment of workers with disabilities after the ADA took effect. Although the number of people with disabilities receiving disability transfers has increased at the same time, the decline in disability employment does not appear to be explained by increased transfers alone, leaving the ADA as a likely cause. Consistent with this view, the effects of the ADA appear larger in medium-sized firms, possibly because small firms were exempt from the ADA. The effects are also larger in states with more ADA-related discrimination charges.

In 1993, the year after the ADA went into effect, there was a sharp drop in the employment of men aged 21 to 39 with disabilities, both in absolute terms and relative to those without disabilities. A similar drop is seen in 1992 for women aged 21 to 39 with disabilities. Extrapolating employment trends, allowing for compounding effects, and controlling for changes in disability insurance and Supplemental Security Income (SSI) participation rates do not appear to explain these declines, leaving the ADA as a likely cause. This interpretation is also supported by evidence that the employment of men with disabilities has fallen more sharply in states with more ADA-related collections activity and by relative declines in the employment of workers with disabilities in medium-sized firms.

In contrast to the results for younger groups, no decline was identified in the employment of women aged 40 to 58 with disabilities. Furthermore, in some specifications, the decline in employment of men aged 40 to 58 with disabilities can be explained by increased transfers. One possible explanation for the difference in results by age and sex is that before the advent of the ADA, workers over the age of 40 were already protected by the Age Discrimination in Employment Act (ADEA), and women over the age of 40 were protected both under the ADEA and Title VII of the Civil Rights Act of 1964. ADA gender-based billing statistics show that billing rates per worker with a disability were in fact lower for women ages 40 to 58 throughout the period after 1993.

Public Policy Lessons

Since the ADA provides a form of employment protection, it should lead to a lower rate of dismissal for employees with physical disabilities. Because Acemoglu and Angrist (2001) found no evidence of an effect of the ADA on the terminations of employees with disabilities, the employment protection story does not receive direct empirical support, although this may reflect measurement error in the estimated termination rates. This result and the fact that the costs of adequate accommodations are likely greater than the costs of litigation for wrongful termination suggest that the costs of accommodations have been at least as important to employers as the fear of lawsuits.

The absence of an offsetting decline in wages suggests that the pay equity provision also played a significant role in the ADA's employment effects. Finally, using empirical strategies that analyze workers with physical disabilities and those without physical disabilities separately, the authors found no evidence of negative effects on non-disabled workers. Contrary to concerns identified in the literature, it seems highly unlikely that the ADA led to a climate of fear of litigation that significantly reduced overall employment.

References

ACEMOGLU, Daron; ANGRIST, Joshua D. Consequences of employment protection? The case of the Americans with Disabilities Act. Journal of Political Economy , vol. 109, no. 5, p. 915-957, 2001.