People with disabilities (PwD) continue to face barriers to employment worldwide, with large gaps in employment between those with disabilities and those without. In Latin America and the Caribbean, for example, 24-35 year-old men with disabilities have a 24% lower employment rate than their non-disabled counterparts, and there’s a 12% disparity for similarly aged women. This demands urgent attention. Such imbalances not only fly in the face of government’s desires to create inclusive societies but accentuate economic vulnerability, as PwD without equitable access to jobs tend to have lower skills levels and make less social security contributions.
Twenty countries in Latin America and the Caribbean are now trying to address labor market discrimination against PwD through mandated employment quotas in the private and/or public sector. Yet, it still remains to be seen how effective such quotas are in practice, given varying results in different countries.
Reclassifying Existing Workers
One problem comes with firms’ tendency to simply reclassify existing workers to give them a disability status. This doesn’t actually increase inclusion as it doesn’t amount to more hiring of PwD who are inactive in the workforce or unemployed. Relabeling typically requires the certification of disability status which may provide access to additional services or accommodation for employees with disabilities. But it doesn’t contribute to the primary objective of broadening employment opportunities.
To explore this issue, we looked at the effectiveness of quotas in Chile, where even after controlling for education and gender, individuals with disabilities have employment rates 21% lower and earn 19% less than those without disabilities. We also experimented with ways to nudge companies to greater levels of hiring PwD.
The Labor Inclusion Law
In 2017, Chile passed the Labor Inclusion Law (21.015), which aimed to foster the employment of PwD. By 2018, it had established a mandate requiring companies with 200 or more employees to ensure that a minimum of 1% of its hires were PwD. This requirement was extended to companies with 100 or more employees the following year.
One feature of this legislation was that it offered adaptable strategies to meet employment quotas. Unlike some countries with higher percentage requirements and stricter penalties on paper for non-compliance, Chile’s system allows employers to fulfill obligations through various avenues. These include direct hiring, contracting with companies employing PwD, or making donations to PwD advocacy groups. Countries such as Brazil and Guatemala have quotas as high as 5% of the workforce for large companies, although only a small percentage of firms are monitored for compliance.
We exploited the discrete nature of the law’s eligibility threshold to conduct an impact evaluation that compares firms just below the threshold to firms just above, both before and after the law phase-in. The results in our recent study suggest that firms increased the percentage of PwD on their payroll by 15.8% (0.08 more PwD employed per firm) and became 3.6% more likely to have at least one PwD worker. This significant boost was driven by more hiring, as well as reclassifications, without detrimental effects on the firms’ productivity.
Nudging Firms to Fulfill Their Disability Quotas
We also launched an experiment involving informational letters sent to quota-eligible firms. These were randomly allocated to four treatment groups: a pure control group, an informational group, a benefits group receiving information and stressing positive social norms about the advantages of inclusion, and a fines group provided with information coupled with the threat of penalties as a deterrence measure. These types of letters were found to effectively increase tax compliance in a previous experiment in Chile.
Here the results were more ambiguous. The letters sent by Chile’s labor department contributed to a 0.13 increase in PwD workers per firm. But these were primarily a result of reclassifying existing employees. This echoed a study in Peru where letters were sent emphasizing social commitment or punishment and showed an increase in hiring of PwD on paper without significantly affecting real quota compliance. In other words, while sending such letters is potentially a cost-effective strategy, they have yet to demonstrate that they actually lead to greater hiring and inclusion of PwD. Quotas to increase inclusion of PwD in Latin America and the Caribbean are still a work in progress, with evidence of modest impacts emerging. But firms’ heavy reliance on simply reclassifying existing workers as PwD means much more work will have to be done to test and refine different policy options to ensure that efforts to hire currently inactive or unemployed PwD are genuine and effective.
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