Principal investigator: Viviane Pires Ribeiro
Paper Title: Consequences of employment protection? The case of the Americans with Disabilities Act
Authors: Daron Acemoglu and Joshua D. Angrist
Location of the Intervention: USA
Sample Size: Not specified
Main theme: Labor market
Main Variable of Interest: Worker with a disability
Type of Intervention: Analysis of the impact of the Americans with Disabilities Act
Methodology: Theoretical and empirical analysis
The Americans with 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 labor market more inclusive without significantly increasing employer costs or reducing employment. In contrast, some social critics point to the potential negative effects it may have on employment. In this intense debate, Acemoglu and Angrist (2001) seek to determine whether this law has in fact improved economic conditions for workers with physical disabilities.
Evaluation Context
The federal law, known as the “Americans with 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 addressing the 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 “appropriate accommodations” for their workers with disabilities. Examples include providing wheelchair access, acquiring 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 receive the same pay as a worker without a disability in the same job, and companies cannot take disability into consideration in hiring and firing decisions.
Proponents of the ADA believe the law will induce companies to make the necessary investments and modifications to employ workers with disabilities and reduce unfair 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 disability insurance beneficiaries. On the other hand, critics of the ADA point out that adapting the workplace for disabled people can be costly and that accommodation costs and litigation related to the ADA can have significant negative effects on employment.
Intervention Details
The study conducted by Acemoglu and Angrist (2001) sought to determine whether the Americans with Disabilities Act (ADA) has actually improved economic conditions for disabled people. Although cases of adequate accommodations have attracted greater media attention, most ADA claims relate to wrongful termination. Therefore, it is possible that the ADA acts as a form of job protection, similar to European severance pay.
The theoretical section of the article uses a standard competitive model to highlight the distinction between accommodation costs and hiring and termination costs due to the threat of lawsuits. While the provision of adequate accommodations under the ADA creates an incentive to employ fewer workers with disabilities, the introduction of hiring and termination costs complicates the analysis. If the threat of litigation related to the ADA encourages employers to increase the hiring of disabled people, and if the number of employers does not respond much to profits or costs, the ADA may increase the employment of disabled workers as ADA proponents hoped. But when most claims concern wrongful termination and the high costs of adequate accommodations, the ADA will likely reduce the employment of disabled people.
The empirical analysis examines the employment and wages of workers with and without disabilities using data from the March Current Population Survey (CPS) from 1988–97. The sample is limited to those aged 21–58, as this group has a strong link to the workforce. 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, data from the Equal Employment Opportunity Commission (EEOC) on discrimination allegations by state were also used to connect changes in labor market variables with the incidence of ADA-related billing activities.
Methodology Details
The theoretical consequences of ADA were explored using a standard competitive model with two types of workers, non-disabled and disabled. Thus, the analysis differs from previous analyses in two ways. First, the authors develop the argument formally and point out possible general equilibrium interactions. Second, they show that ADA could increase the employment of disabled people 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 income data. Although the CPS switched from paper questionnaires to computer-assisted interviews in 1994 and the main questions about the state of the workforce were also revised at that time, the content of the income supplement remained unchanged.
The income supplement variables refer to the previous calendar year, therefore the sample has data on weeks worked and wages from 1987-96. The question about disability status in the CPS appears to refer to the respondents' status at the time of the survey, but in fact serves as an initial question preceding additional questions about disability income supplement in the previous year.
Results
Although the ADA aims to increase employment for people with disabilities, the net theoretical effects are ambiguous. For men of all working ages and women under 40, data from the Current Population Survey show a sharp decline in employment of workers with disabilities after the ADA came into effect. Despite the number of people with disabilities receiving disability transfers increasing at the same time, the decline in disability employment does not appear to be explained solely by the increase in transfers, leaving the ADA as a likely cause. Consistent with this view, the effects of the ADA appear greater in medium-sized companies, possibly because small companies were exempt from the ADA. The effects are also greater in states with more accusations of discrimination related to the ADA.
In 1993, one year after the ADA came into effect, there was a sharp decline in employment among men aged 21 to 39 with disabilities, both in absolute terms and relative to non-disabled men. A similar decline is observed in 1992 for women aged 21 to 39 with disabilities. Extrapolating employment trends, allowing for composition effects and controlling for changes in disability insurance and Supplemental Security Income (SSI) participation rates, does not appear to explain these declines, leaving the ADA as a likely cause. This interpretation is also supported by evidence that employment among men with disabilities fell more sharply in states with more ADA-related billing activity and by relative declines in employment of workers with disabilities in medium-sized firms.
In contrast to the results for younger groups, no decline in employment was identified for women aged 40 to 58 with disabilities. Furthermore, in some specific cases, the decline in employment for men aged 40 to 58 with disabilities can be explained by increased transfers. A possible explanation for the difference in results by age and sex is that prior to the advent of the ADA, workers over 40 were already protected by the Age Discrimination in Employment Act (ADEA), and women over 40 were protected by both the ADEA and Title VII of the Civil Rights Act of 1964. ADA charge statistics based on gender show that charge rates for workers with disabilities were in fact lower for women aged 40 to 58 throughout the period after 1993.
Lessons in Public Policy
Since the ADA provides a form of job protection, it should lead to a lower dismissal rate for employees with physical disabilities. As Acemoglu and Angrist (2001) found no evidence of an effect of the ADA on dismissals of employees with disabilities, the story of job protection does not receive direct empirical support, although this may reflect a measurement error in the estimated dismissal rates. This result, and the fact that the costs of adequate accommodations are likely greater than the costs of wrongful termination litigation, suggest that accommodation costs have been at least as important to employers as the fear of lawsuits.
The absence of a compensatory decline in wages suggests that the provision of equal pay also played a significant role in the effects of the ADA on employment. Finally, using empirical strategies that separately analyze workers with and without physical disabilities, 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 the overall level of employment.
References
ACEMOGLU, Daron; ANGRIST, Joshua D. Consequences of employment protection? The case of the Americans with Disabilities Act. Journal of Political Economy, v. 109, no. 5, p. 915-957, 2001.
