Integrating Severely Disabled Individuals into the Labour Market: The Austrian Case

We study the impact of the Austrian Employment Act for the Disabled which grants extended employment protection, requires a hiring quota for firms, and subsidizes the employment of severely disabled (SD) workers. Using a large sample of eligible individuals we compare workers before and after acquiring legal SD-status. Unsurprisingly, we find that holding SDstatus is associated with lower employment and earnings. However, workers holding a job when acquiring legal SD-status have substantially better subsequent employment prospects after SD-award than before. In contrast, workers who do not hold a job at the date of SDentry do dramatically worse after SD-award than before. This suggests that employment protection legislation places substantial firing costs on firms and has a major impact on the decisions of firms to hire disabled workers.