Chapter 18 The economics of disability and disability policy

We discuss and critique the main lines of economic research that address the economic status and behavior of the working-age population of people with disabilities. We define this population as those with physical or mental limitations that impede their daily activities or their productivity on the job. Using this definition, we assess the prevalence, trend, and composition of the population of disabled working-aged people in the United States and other Western societies, and document the extent of market work among this population. Such market work contributes to the economic well-being of the working-age disabled, but for most of them, income from public transfers and from the earnings of other household members are crucial in determining the level of family economic well-being. Relative to the nondisabled, those with disabilities have substantially lower levels of economic well-being in spite of public income support programs. While public income support is important in sustaining the level of well-being of the disabled, these policies also have serious incentive effects, especially labor supply disincentives. We document these incentive effects in US policy, and review the research studies that estimate the response of disabled people to these incentives. In addition to income support policy, we also describe public policy toward disabled people associated with antidiscrimination legislation, rehabilitation and training programs, income support for poor disabled children, and public regulations and financial support for special education in schools. We conclude by comparing US disability policy with that in other Western industrialized countries and identifying research issues that are relevant to all societies with advanced policies toward working-age people with disabilities.