VoxTalks Economics: The Effects of Disability Hiring Quotas Christiane Szerman and Tim Phillips 5 July 2024

[00:00:00] Tim Phillips: Today on VoxTalks Economics, who benefits from disability hiring quotas? Welcome to another in our VoxTalks based on the most interesting presentations from the CEPR / Paris School of Economics Symposium 2024. My name is Tim Phillips. And more than 100 countries have some form of quota regulation that requires firms to hire people with disabilities. Does this example of affirmative action help people who have a disability to find a job? And what's the impact on the firm and on the fellow workers? Christiane Szerman of the London School of Economics is the author of a new study on the labour market effects of a hiring quota in Brazil. And she joins me now, Christiane. Welcome to VoxTalks Economics. [00:00:56] Christiane Szerman: Thank you, Tim. Thank you for having me here. [00:01:00] Tim Phillips: Around the world, Christiane, how much more likely is it that people with disabilities are unemployed? [00:01:07] Christiane Szerman: So, in many countries like Brazil, the US, the UK, people with disabilities are twice as likely to be unemployed as people without disabilities. [00:01:16] Tim Phillips: And when we have these hiring quotas, typically, what do they require firms to do and how are they enforced? [00:01:24] Christiane Szerman: So, a typical hiring quota requires a certain firm to have a fraction of their workforce composed of people with disabilities. This fraction can range from something like 1% to 10%. Countries like Korea, Indonesia, and Malaysia, they have a disability hiring quota of at least 1% and other countries like Bangladesh and Cyprus they have a 10% quota. The outlier is actually Senegal, they have a 15% quota. So even though that more than 100 countries they have some form of quota regulation for people with disability, their enforcement is quite low, and the non-compliance is very common in most countries. [00:02:01] Tim Phillips: And what are the economic arguments for quotas and against quotas? [00:02:05] Christiane Szerman: So, in competitive markets, you can imagine that on the one hand, quotas can promote redistribution by creating job opportunities for people with disabilities who otherwise would not be employed. But on the other hand, from my experience, [there is danger of] low profits, if people with disabilities have low productivity or people without disabilities might be displaced by this new hiring with disability. But there are a lot of frictions in the labour market, including discrimination. So these arguments against quotas might not be true at the end of the day. [00:02:34] Tim Phillips: There are clearly, from what you're saying, hundreds of millions of people around the world who may be affected by this discrimination, or they may benefit from these policies that will help them find work. Christiane Szerman: Yes. Tim Phillips: But we don't seem to know a lot about this from existing research. Why don't we know more about the impact of these quotas or similar policies? [00:02:56] Christiane Szerman: I think most people are just not aware of how common disabilities are, especially with the fact that most disabilities are actually invisible. Whenever I present my work and tell the audience that more than 1 billion people, they have some form of disability, people are very surprised by this fact. Another reason has to do with the fact that most administrative and survey data, they don't have information on disability or the type of disability and preventing more research on this topic. Even when this information is available, they are often collected in the wrong way, or the questions are not consistent across countries or over the years, so they are not very useful for research. [00:03:39] Tim Phillips: Okay, let's talk about your research. So you had 100 countries to choose from, we've established. Why choose Brazil for this research? [00:03:47] Christiane Szerman: I think there are a lot of reasons why Brazil is a good setting to understand the labour market effects and enforcement of quota regulation for people with disability. The first one has to do with the fact that Brazil has rich data with information on disability and the type of disabilities, including the matches [of] employee, employee data type. The second reason has to do with the large size of the country and the population, that can give me some statistical power when people with disabilities are very underrepresented in the labour market. And the third reason has to do with the fact that [for] most people with disability in Brazil, less than 4% of them are actually covered by disability insurance. So, this means that I can shut down access to social insurance as a key explanation for the high unemployment rate for people with disabilities. But the most important reason is that Brazil had a reform around the early 2000s that essentially combined the regulation and enforcement, and this combination will give me a new source of variation to see how firms respond to enforcement of quota regulation. [00:04:47] Tim Phillips: As you say, people with disabilities are underrepresented in Brazil's labour market. Can we conclude from this that Brazilian firms have been discriminating in hiring against disabled workers? [00:04:58] Christiane Szerman: Yes, firms discriminate [against] people with disabilities in the labour market. But I also think it's important to emphasise that there are a lot of non-discriminatory factors that can explain why people with disabilities have higher unemployment rates relative to those without disabilities. These factors can be like the lack of awareness of disability issues or lower education levels for people with disabilities. But employers' unwillingness to hire people with disabilities at work is still a major problem. What I did, I did a survey with employers in Brazil, mostly HR workers, to gather more information about how people with disabilities are perceived by them. So, in this survey, I did a very simple vignette experiment, in which I described a fictitious candidate applying for an entry level job, and I randomised information on disability, so that it doesn't affect the worker productivity at work. Or doesn't require any sort of accommodation. And then I asked the employers how willing they were to hire this candidate. So, I found that in the firms that the employers are 22% less likely to have interest in hiring a candidate with disabilities relative to exactly the same candidate without disabilities. And this gap is actually very similar to a lot of countries like the United States and cannot be entirely explained by concerns related to productivity or accommodation. [00:06:15] Tim Phillips: Tell me about this regulation in Brazil then, which firms does it apply to? What does it demand that they do? [00:06:23] Christiane Szerman: So the regulation only applies to private firms in the formal sector across the country and firms with less than 100 employees, they are not required to hire a worker with disability. Firms with more than 100 employees should have at least 2% of the workforce composed of people with disability, and then firms with more than 200 employees have at least a 3% requirement. Firms with more than 500 employees have a 4% requirement, and then firms with more than 1,000 employees, they have a 5% requirement to hire a worker with disability. [00:06:56] Tim Phillips: What's the punishment for these firms if they're found to have missed these quota targets? [00:07:02] Christiane Szerman: So this reform that I talk about that happened in Brazil, it also establishes that labour inspection could be used as an enforcement mechanism. So once employees are inspected and found to be non-compliant with the regulation with the disability hiring codes, they are granted a grace period to either hire people with disabilities or pay fines. And the fine can be very costly to the firm. They can range from 2.35 to 235 times of the monthly minimum wage for each person with disabilities not hired. [00:07:31] Tim Phillips: How can you make a causal claim here? How can you say that any differences in hiring have been caused by the introduction of these quotas? [00:07:39] Christiane Szerman: Sure. So the reform was essentially a combination of regulation and enforcement. So on the aggregate, you can imagine that the regulation itself will have more impact on local labour markets. Here, I'm talking about microregions in Brazil, but it's equivalent to commuter zones, have a large impact on local labour market with large employers, because they will potentially demand more people with disability to work. However, the regulation alone is not enough because most employers, they don't comply with the regulation from the beginning. So the reform was also about enforcement. It was about using labour inspection as the main enforcement mechanism. So the technology for enforcement is very simple. The only thing that you need in addition to a number of inspectors is a car to drive from a local labour office to a particular local labour market. So you can imagine that [for] local labour markets that are located closer to a local labour office, they will have high enforcement capacity and they will respond more. So this is what I do. I compare local labour market outcomes for people with disabilities and people without disabilities in local labour markets that are more exposed to the reform because they had higher potential demand and higher enforcement capacity to those local labour markets less exposed to the reform before and after the reform. [00:08:54] Tim Phillips: So, let's look at the results that you got from this. First of all, the big question, were people with disabilities more likely to have a job after these reforms were introduced? [00:09:03] Christiane Szerman: Yes, I find that [for] people with disabilities in local labour markets [that] were more exposed to the reform, they had larger gains in employment relative to people with disabilities in local labour markets less exposed to the reform. [00:09:14] Tim Phillips: And what about their earnings? What was the effect there? [00:09:18] Christiane Szerman: They have higher earnings because they're more likely to be employed. [00:09:21] Tim Phillips: Brazil has a very large informal sector and people move in and out of it. So, were these new hires moving from the informal sector to formal employment? Because this would be a really quite straightforward way for firms to do that adjustment. [00:09:35] Christiane Szerman: Yes, but I don't find any evidence that new hires with disability come out of the informal sector. They mostly come from non-employment. [00:09:43] Tim Phillips: Does this mean that fewer people without a disability were hired into formal employment? [00:09:51] Christiane Szerman: No, I don't find any evidence of labour-labour substitution, and I don't find any evidence reporting that workers without disabilities are affected by this reform. [00:10:00] Tim Phillips: Again, now all of this is in the aggregate. Can the same data, this data that you're analysing, can it tell you how individual firms responded to this regulation? [00:10:10] Christiane Szerman: So the census data is quite nice, but they don't tell us how firms respond individually to the enforcement of the regulations. But Brazil has this massive employer-employee data set with information on disability and the type of disability. So remember that once the firms are inspected and found to be non-compliant with the regulation, they are granted a grace period to either hire more people with disabilities or be fined. So I can compare firms who have slightly more than 100 employees to firms who have slightly less than 100 employees, because they are not under quota regulation, before and after a labour inspection. [00:10:45] Tim Phillips: What does this tell you about the behaviour of firms, how they're adjusting to be compliant? [00:10:50] Christiane Szerman: So firms, they hire more people with disability, but they hire them more into low paying jobs. Tim Phillips: Right. Christiane Szerman: They also prefer to hire people with milder forms of disabilities, like people with physical disabilities or hearing impairment. People with intellectual disabilities or visual impairment, they are not as more likely to be hired. But what is more important is that I find no evidence that firms experience lower profit because I estimate that people with disabilities, they have productivity close to wages and there is also no evidence that people without disabilities are negatively affected in terms of employment or wages. [00:11:24] Tim Phillips: Are there perhaps other benefits to hiring people with disabilities, soft benefits such as diversity in the workplace which are harder to measure but would still exist? [00:11:37] Christiane Szerman: I think it's possible, but it's not something that I can quantify in my paper. You can think maybe employers, they might benefit from a higher diversity in the workplace, from having a better reputation as a socially responsible firm, or from having employees that have a really strong sense of pride in working for an inclusive firm. It's also possible that providing coverage can generate other social benefits: you can think that providing job opportunities for people with disability can improve their health condition or lower criminal involvement. I think quantifying this benefit is really important for future research. [00:12:12] Tim Phillips: And can this research that you've done, can it tell us anything about what explains this discrimination in hiring against people with disabilities? [00:12:21] Christiane Szerman: I think this is a great question. It could be a number of factors. You can think of stereotypes, misconceptions, lack of awareness of understanding of different types of disabilities and regulation supporting people with disabilities, concerns about accommodation costs, even though that in most cases, it's not more costly to the firm to hire a worker with disability than hiring someone without disability for the same job. You can think of cultural attitudes, lack of enough people with disabilities in senior or top positions that can stop the myth that people with disabilities cannot succeed in the workplace. I think all these factors and many other factors can explain this discrimination in hiring against people with disabilities. [00:13:11] Tim Phillips: So, Christiane, we can be pretty sure from what you found that people with disabilities who are working are better off after this regulation is enforced. Can we say that the firms or other workers are worse off? [00:13:28] Christiane Szerman: No, there is no evidence that the firms experience lower profit because I estimate that actually people with disability have productivity higher or close to the wages, and there is no evidence that people without disabilities are affected in terms of employment or wages. [00:13:44] Tim Phillips: As we discussed earlier, quotas are different in different parts of the world. The quotas that there are in Brazil, they're not representative of the proportion of people who are living with disabilities in the society. So, if these quotas were bigger, with this positive welfare impact that you're finding here, would that be bigger as well? [00:14:02] Christiane Szerman: I think it's a great question and I don't know the answer. What my analysis does is that it manages to compare from around a 2% quota, which is quite small. So, it's possible that bigger quotas can generate a larger welfare impact because more people with disabilities would be hired. This means that we would have higher productivity gains from working. The government will probably raise more fiscal revenue by spending less on welfare benefits and raising more income taxes because of higher employment. But it's also possible that bigger quotas can generate other costs like distortion in the production function or moral hazard to make people without disabilities then be reported as having disability for the purpose of quotas. I think we definitely need more research on what the ideal size of the quota policy should be. [00:14:50] Tim Phillips: Affirmative action is controversial at the moment, particularly affirmative action that is enforced through quotas. Are there alternative policies to quotas that might also work in this context? [00:15:04] Christiane Szerman: I think the most common alternative to quota policies is wage subsidies. Governments often provide financial incentives for employers to subsidise the wages of workers with disabilities, making hiring and retaining these workers more attractive to these employers. In principle, they are more desirable than quota policies because they don't mandate any sort of employment to employers. The problem that previous research has shown that, uh, wage subsidies are very ineffective. The main reason why wage subsidies seem to not work is that most employees think they should not hire people with disabilities in the first place, so they don't qualify for these subsidies. Anti-discrimination regulations like the 'Americans with Disabilities Act are also quite important, but they can be very difficult to monitor and enforce, and they are not sufficient to address the deeply ingrained biases and systemic inequalities against people with disabilities. It might take a very long time, maybe never, to close the employment gap that we observe for people with disabilities. [00:16:03] Tim Phillips: And one reason why it might take a very long time is we are seeing a backlash against affirmative action in some places, in some contexts. If there were no quotas at all, if we did away with quotas to improve these opportunities for people with disabilities to find work, Christiane, how would the world be different? [00:16:25] Christiane Szerman: Quotas were created after the First World War to provide job opportunities for veterans who got injured during the war. And more than 100 years later, we're still discussing the fact that non-compliance is quite common. I think quotas are quite far from ideal, and they might not address a lot of issues related to bias and inequality in the workplace. However, I think that without quotas, we would have fewer jobs available for people with disabilities. [00:16:49] Tim Phillips: Christiane, thank you. [00:16:51] Christiane Szerman: Thank you. [00:16:58] Tim Phillips: The paper is called The Labour Market Effects of Disability Hiring Quotas, and you've heard from the author, Christiane Szerman. [00:17:13] VO: This has been a VoxTalk for the Centre for Economic Policy Research. 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