Economic Model of Disability

Under this Model, disability is defined by a person’s inability to participate in work. It also assesses the degree to which impairment affects an individual’s productivity and the economic consequences for the individual, employer and the state. Such consequences include loss of earnings for and payment for assistance by the individual; lower profit margins for the employer; and state welfare payments.

The Economic Model is used primarily by policy makers to assess distribution of benefits to those who are unable to participate fully in work. In recent years, however, the preoccupation with productivity has conflicted with the application of the Medical Model to classify disability to counter fraudulent benefit claims, leading to confusion and a lack of co-ordination in disablement policy.

The challenge facing the Economic Model is how to justify and support, in purely economic terms, a socially desirable policy of increasing participation in employment. Classical economic laws of supply and demand stipulate that an increase in the labor market results in decreased wages. Arguably, extending access to work through equal opportunities reduces an employer’s labor costs, but other factors come into play.

The value of labor is based upon its contribution to marginal cost, i.e. the cost of producing the last unit of production. This only works when employees make an equal contribution to marginal cost. However, evidence suggests that disabled employees make a lower contribution than their work colleagues do, resulting in losses in production and lower profits for the employer.

Employers may recognize compensations for any loss in employing less-productive disabled employees through kudos, publicity, customer alignment and expansion arising from their presentations as an organization with community values. However, employers are not generally altruistic and hold the economic viability and operational effectiveness of their organization as higher priorities than demonstrating social awareness. Their economic option is to pay disabled employees less or have the losses met through subsidy.

The problem for the users of Economic Model is one of choice. Which is better: to pay the disabled employee for loss of earnings, or the employer for loss of productivity? The first carries stigma for the disabled person by underlining their inability to match the performance of work colleagues. With the latter, difficulties arise in correctly assessing the correct level of subsidy. The productivity of a disabled employee may well change, as well as the marginal costs of the total workforce.

This leaves one outstanding difficulty for the socially minded economist. How do we achieve an equitable, effective, value-for-money distribution of disability related benefits? It is likely that there will be people with disabilities that prevent them from doing working. There will be others whose productivity levels are so low that the tax benefits to the public purse are outweighed by the employment subsidy. In economic terms, these people are unemployable and should be removed from employment to supplementary benefits, saving the expenditure on the subsidy. But is this socially acceptable? This apparent conflict has created ambiguity in agreeing social security goals and has led to stigmatization of disabled people as a burden on public funds rather than partners in the creation of general social prosperity.

Social security benefits are not designed to remove disabled people from poverty. The policy maker needs to balance equity (the right of the individual to self-fulfilment and social participation through work) and efficiency. The true value of the Economic Model is maintaining this balance in the macroeconomic context of trade cycles, inflation, globalization and extraordinary events such as wars.