Do Financial Incentives Affect Firms’ Demand for Disabled Workers?

Abstract

A number of OECD countries aim to encourage work integration of disabled persons using quota policies. For instance, Austrian firms must provide at least one job to a disabled worker per 25 nondisabled workers and are subject to a tax if they do not. This "threshold design" provides causal estimates of the noncompliance tax on disabled employment if firms do not manipulate nondisabled employment; a lower and upper bound on the causal effect can be constructed if they do. Results indicate that firms with 25 nondisabled workers employ about 0.04 (or 12%) more disabled workers than without the tax; firms do manipulate employment of nondisabled workers but the lower bound on the employment effect of the quota remains positive; employment effects are stronger in low-wage firms than in high-wage firms; and firms subject to the quota of two disabled workers or more hire 0.08 more disabled workers per additional quota job. Moreover, increasing the noncompliance tax increases excess disabled employment, whereas paying a bonus to overcomplying firms slightly dampens the employment effects of the tax. Abstract A number of OECD countries aim to encourage work integration of disabled persons using quota policies. For instance, Austrian firms must provide at least one job to a disabled worker per 25 non-disabled workers. Non-complying firms pay a tax for each job-month missed. We study the role of this employment quota on firms' demand for disabled workers. Specifically, we compare firms that employ 25 non-disabled workers and are subject to the non-compliance tax to firms that employ 24 non-disabled workers and are not subject to the tax. Our results indicate that firms with 25 non-disabled workers employ about 0.04 (or 12 percent) more disabled workers than would be expected from smaller firms, employment effects are stronger in low-wage firms than in in high-wage firms, and the quota generates excess disabled employment on the order of 0.07 among firms located at non-disabled firm size 50 and higher. Two reforms of the system also suggest that increasing the non-compliance tax increases excess disabled employment, whereas paying a bonus to over-complying firms slightly dampens the employment effects of the non-compliance tax. These results are only valid if we rule out strategic behavior in firms' choice of non-disabled employment that is related to the tax. We show in a simple behavioral framework that firms may indeed manipulate non-disabled employment and that this manipulation can lead to either upward or downward biases. Based on empirical estimates for manipulation we provide a lower and upper bound for the causal effect of the quota on firms' demand for disabled employment.JEL classification: J15, J20, J71, J78

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