Disability and the Labor Market in Latin America
By Gonzalo Hernández Licona, Department of Economics, ITAM (paper submitted to the annual conference of the Inter-American Development Bank, Chile, March 2001)
2. Theoretical framework
The analysis of the disabled population's participation in the labor force has already been explained in the literature. The following are the most important aspects on the individualÃs labor force participation , which can be divided into supply and demand-side effects.
Elements affecting the labor supply.
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One of the aspects of disability, which affects the labor force participation, is the reduced life expectancy of the disabled individual. Everything else constant, the shorter the individualÃs life expectancy today, the less the individual will work.
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To participate in the labor market, the disabled individual has to incur in additional expenses, such as costs of rehabilitation, special transportation and equipment or personal assistance services, which reduces his labor supply.
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Search costs are generally higher for the disabled. This reduces the time the individual can devote to job seeking, and therefore the job obtained at the end of the search will be of a lower quality. If the disabled individual is being helped by third parties in this job search, the people helping him will absorb these search costs, up to the point where the disabled individual feels no need to accept any job offer.
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Everything else constant, the individual that is afflicted by a disability will consume less and save less than before. However, the effect on labor participation is uncertain, depending on how much time the disability steals from the individual and how much is labor productivity diminished by the condition.
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The leisure-work time allocation may also be distorted by the existence of other sources of income, such as insurance payments, earnings from other members of the household, public programs and subsidies and the wage rate itself.
In developed countries, the approach is to provide the disabled with a supplemental or non-labor income. This will make the individual better off, but he will participate less, and when participating, will definitely work less.
This phenomenon has been widely explored by Livermore et al. (2000) studying policies affecting the disabled workers of the United States. Policies in the US are mainly focused on providing additional income for the disabled and their families, and it should come as no surprise that these policies inevitably decrease their labor participation.
The question is how to make the individual better off and increase his labor force participation. If the market could provide a higher wage for the disabled person, the individual would be better off and participating more in the labor force. This way, the individual can be as better off as if he was given a supplemental income with the difference that the individual participates more than if the income is merely handed out to him.
Also, supplemental income for the disabled in the US becomes a permanent source of income. The effects would be quite different if the individual would receive this income once in its life cycle, or as a loan for a productive project that the individual could pursue regardless of his disability.
Providing a higher wage for the disabled is something that cannot be achieved artificially. The only possibility is creating new capabilities for the disabled person, providing special infrastructure, promoting a culture of labor demand for the disabled and helping reduce search costs for the individual through job-placement databases. Such policies would help the individual to better sell his labor in the market. These policies require that policymakers know the exact types of disability suffered by their target populations. Therefore, again it is important to build statistical data on the type of disability suffered by the individuals so countries can help them to help themselves.
Elements affecting labor demand
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The disability itself may be viewed by the employer as a signal of lower productivity, which can generate discrimination of the disabled in the workplace.
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If the firm has to or believes it has to incur in additional costs to accommodate the disabled workers the cost of such accommodations will have a weight in the decision of hiring the disabled. Put it another way, the firm may perceive that the labor demand adjustment cost for a disabled individual is higher than the cost associated to workers without disabilities.
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Wages for the disabled will be lower as a result of lower productivity. The wage reduction does not necessarily apply to individuals with clerical or sedentary jobs who suffer from a physical disability, provided that the health status of the individual does not affect the individualÃs capability to work. However, it is true about poorer individuals that carry out non-clerical jobs, where the disability is physical or mental and unavoidably affects the personÃs ability to work.
Livermore et al. (2000) describes a policy known in the US as Section 190 Tax Deduction (and the Section 44 Tax Deduction for small businesses), which allows businesses to deduct expenses related to removing impediments to persons with disabilities from their place of business. There is also what is called a Work Opportunity Tax Credit, which allows for a tax credit equal to 35% of the wages of certain groups, including the disabled. This is important because it shows that there is public recognition of an existing labor demand problem.
Finally, disability modifies not only the individualÃs labor decisions, but also the entire household dynamics. This is true especially in Latin American countries, where the family plays the safety net role, that sometimes the government cannot provide.
A physically disabled person poses two problems for the family. The first one is that he needs someone to take care of him. According to his degree of disability, this can be a time consuming activity for the caregiver, which lowers his probability of participation in the labor market. On the other hand, the disabled member reduces the familyÃs potential income, both because he may not be able to work and because he may need a higher consumption than the one needed by other family members. In this case, the participation rate of the other members would rise. The net effect on the household dynamics cannot be determined a priori theoretically, and would depend on the degree of disability and on the individualÃs position in the household.
Disability and Poverty
According to Elwan (1999), disability adds to the risk of poverty, and conditions of poverty increase the risk of disability. Elwan also defines a path from poverty to disability, because poor people tend to work more often in demanding or more risky environments, and are more exposed to environmental hazards in countries were environmental standards are low or poorly enforced. Moreover, poor households do not have adequate food, basic sanitation and access to preventive healthcare. These conditions contribute to the risk of becoming disabled. Elwan offers many other links between being poor and being disabled, for both developed and developing countries, which can be summarized as follows:
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Rural disability rates appear to be higher than urban rates, and disability rates for women seem to be higher than men's in developed countries, and lower in developing countries.
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Disabled people have lower education, income levels, savings and other assets than the rest of the population.
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There is an absence of data in disability prevalence for developing countries, but it is clear that the proportion of disability caused by communicable, maternal and perinatal diseases as well as child disability is higher in developing countries than in the developed world.
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Accidents and conflicts are another important source of disability. Breakdown of health institutions during social conflict makes normally treatable conditions become disabling.
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Not only does disability add to the risk of poverty, but also conditions of poverty add to the risk of disability.
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Additional costs that stem from the disability can make disabled people and their families worse-off.
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Exclusion and segregation reduce the opportunities for the disabled to contribute productively to the household and the community and increase the risk of falling into poverty.
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Women, the mentally handicapped and the elderly are more vulnerable to the risk of poverty in face of a disability.
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In many developing countries, income maintenance and reserved employment schemes have limited applicability, so disabled people have to rely on informal systems for support. This is specially important: as in unemployment schemes, in the absence of State-sponsored programs family and informal networks between people provide the assistance for the individual that needs it. Such schemes are very common in the Latin American region, where in most cases the relatives of the disabled feel obligated to take care of the disabled individual.
According to Elwan (1999), in developed countries disabled people receive less education than others, and present an unemployment rate that is twice or even three times that of non-disabled people. Not only participating in the labor force and working is harder for the disabled, building human capital seems to be difficult also.
Broadly speaking, Elwan stresses the point that although data is scarce for the developing world, disabled people are much less likely to be engaged in economic activity than the rest of the population. In the absence of state-sponsored programs to help families with disabled members, this may be true about the disabled individual, but not about the household as a whole. Members of the family probably have to exert a higher work effort in order to contribute the income that the disabled member is not earning and to take care of this disabled individual within the household. The disabled person, depending on the type of disability suffered, might need to find a productive activity either in non-market activities inside the household. Such activities may include babysitting or other type of supervision for younger members of the family, or a market activity the informal sector (in activities such as begging, trading, street commerce or performing arts).
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