New research suggests hiring subsidies are ineffective to promote employment amongst disabled people in Spain

Hiring subsidies in Spain have proven ineffective to promote the participation of disabled people in the labour market, according to a recent study co-authored by the UB School of Economics and IEB researcher Judit Vall Castelló. But it is not all bad news, because positive effects have also been found in the transition of older individuals from unemployment to employment, as well as of women from temporary to permanent positions. These findings have important policy implications, as a significant amount of money is spent in these policies every year in Spain.

The results have been published in The European Journal of Health Economics under the title Hiring subsidies for people with a disability: do they work? The article has been co-authored by the Universitat Pompeu Fabra researchers Sergi Jiménez-Martín and Arnau Juanmartí Mestres and the Universitat de Barcelona researcher Judit Vall Castelló. She suggested that “one potential solution to foster employment prospects of disabled workers may be to provide better and more detailed information to employers on the productivity of disabled workers, as many employers point to the «expected» low productivity of disabled workers as the main reasons not to hire them”.

The Spanish government decided to transform disability policies that relied too much on disability benefits into schemes that promoted the labour market integration, a common move in several countries. Employment subsidies are direct payments from the government to the employer designed precisely to reduce the labour costs associated with the recruitment of disabled individuals, increase the demand for these workers and improve their employment outcomes. The article assesses the effectiveness of the employment subsidies for people with a disability in Spain from 1990 to 2014.

The Spanish subsidy scheme for people with a disability introduced an element of employment protection, as it made compulsory for the employer to maintain the subsidised worker in employment during a certain amount of time if hired under a permanent contract. The authors of the study found that the higher degree of employment protection is associated with a decrease in the probability of being hired under a permanent contract and an increase in the probability of being hired on a temporary basis.

Therefore, the researchers suggest that incorporating employment protection measures into subsidy schemes may have undermined the effectiveness of the subsidies at incentivising transitions to employment. Moreover, the authors explain that the subsidy scheme is associated with an increase of individuals entering the disability insurance (DI) programme, which puts an unnecessary financial pressure on the public accounts. For those individuals, DI benefits are their unique source of income and, if they do not manage to find a job, will probably continue to rely exclusively on income support programs until they enter the retirement system.

The article also shows that the disincentive effects of the employment protection component are concentrated in younger individuals and men, groups for whom a higher degree of employment protection is associated with higher transitions to disability insurance. This suggests that this protection measure may be inducing individuals that are looking for permanent employment to turn to disability insurance instead.

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