Differences in the returns to education for males by disability status and age of disability onset.

• Author: Hollenbeck, Kevin
• Position: Author abstract

1. Introduction

   In 1990, the U.S. Congress passed the Americans with Disabilities Act (ADA), legislation perceived as a hallmark in the quest by individuals with disabilities for equal access to labor market opportunities. Numerous studies have been published in recent years assessing the outcomes to date of this legislation, and much debate continues regarding its success or failure in improving labor market outcomes. However, the ADA is only one means of addressing labor market difficulties faced by individuals with disabilities. Because its primary intent is to expand the number of employment opportunities via employer accommodation, the ADA may be characterized as a demand-side intervention. (1) Numerous education, training, and rehabilitation programs operate on the supply side of the labor market. One example of increased attention on supply-side programs may be seen in the Workforce Investment Act of 1998. This sort of disability management model program has the goal of enhancing the skills and knowledge of workers with disabilities to increase their productivity and employability. (2) The returns to education for the population with disabilities is indicative of the potential efficacy of such supply-side interventions. If the rates of return to formal education are large, then it might be argued that there is an underinvestment in such interventions. If the rates are low, then expanding this human capital intervention as a way to improve employment or earnings may not be indicated. Formal educational attainment and its differential effects by disability status and age of onset are the focus of this paper.

   For an individual with a work-limiting condition, the age of onset of this condition plays a role in education choices and employment. A priori, one might expect that among the population with disabilities, those with early onset of the disability are the most able to adjust human capital investments and obtain job matches that minimize the potentially negative labor market impacts of the disabling condition (see Loprest and Maag 2003). However, the early onset of the disability might hinder human capital investment or affect its quality.

   Many studies and data sets have been used to document the disparities in employment-related outcomes between people with and without disabilities, and many nice summaries exist in the literature. (3) Depending on the data used and the definition of disability, (4) approximately 8-15% of individuals of working age have disabilities. In general, individuals with a disability report lower employment rates, lower levels of educational attainment, and lower wages. Additionally, many researchers have reported a post-ADA decline in employment rates, although the cause of this trend is not clear and might be related to a worsening in recent years of disability severity amongst the population reporting disabilities, or the trend might be confounded by changes in the labor force participation rates among the disabled. (5)

   The disability literature is lacking in detailed information regarding the role that age of onset of disability may play in education and employment outcomes. Using data from the Health and Retirement Survey, Burkhauser, Butler, and Weathers (2002) find that the average age of disability onset amongst those with working-age onset is 47.9 years for men and 47.4 years for women. (6) Burkhauser and Daly (1996) report that approximately 70% of individuals with disabilities in their study (using the Panel Survey of Income Dynamics) became disabled during their working lives. The authors show that employment rates decline after disability declaration, but incomes fall more, with male labor earnings falling approximately 25-30% and female labor earnings falling nearly 50% (p. 72). Additional evidence regarding age of disability onset can be gleaned from published reports from the 2000 Census (see, for example, Waldrop and Stern 2003), which show clearly, as expected, that disability rates rise with age. While only 5.8% of the population aged 5 to 15 years report any disability, that percentage increases to 18.5% for the working-age population and to 41.9% for those aged 65 years or older. Related to factors associated with age of disability onset is variation in disability status (i.e., disability status is not always permanent and a large percentage of those reporting disabilities in any given year report themselves as newly disabled) (Kruse and Schur 2003b, p. 290).

   Loprest and Maag (2003) provide a detailed portrait of educational attainment and age of onset of disability. Using data from the National Health Interview Survey, they indicate that only about 16.3% of their sample reporting disabilities reported onset prior to age 22 years. Fully one third of this early-onset group failed to achieve a high school education, while only 7.8% reported college completion. While the late-onset group (those who experience disability onset after age 22 years) also reported surprisingly similar high rates of failure to complete high school, they reported twice the rate of college completion. Loprest and Maag find that the two groups have comparable employment rates but that the late-onset group earns higher average hourly wages. (7)

2. Wage Regression Evidence for Workers with and without Disabilities

   Looking broadly at the literature that provides estimates of wage equations for people with disabilities, we classify the relevant literature into three groups: papers that focus on measurement and endogeneity concerns, papers that focus on particular forms of disability, and papers that focus on discrimination. The first component of the disability literature recognizes significant heterogeneity by type of disability and how disability is measured. (8) Kruse (1997) uses the 1992 and 1993 Panels of the Survey of Income and Program Participation, otherwise known as the SIPP, to focus on those with disabilities using a broad definition of disability. He finds that while individuals with severe disabilities have much lower employment rates than the non-disabled, rates for those with moderate disabilities are not so different. He suggests that unobserved (or unmeasured) characteristics such as ability, job access, or discrimination partially explain the lower employment rates, although he also allows that diminished returns to human capital (the focus of this paper) might also play a role.

   Kruse and Schur (2003a) focus further on different measures of disability and the role that these different measures play in explaining employment-related disparities and ADA effects. They explain that, in general, the negative association between employment and disability is "due in part to high reservation wages associated with many disabilities, particularly resulting from disability income and extra demands on time and energy" (p. 3). (9)

   Also relating to measurement issues is the literature that focuses on the endogeneity of self-reported disability (often tied with the ability to work). Stern (1989) finds that the endogeneity bias may be minimal, however. He finds that two self-reported health status measures (a work-limiting condition measure and an overall health status measure) serve as good proxies for estimating the effect of disability on labor force participation.

   Moving beyond broader measurement issues is the literature that focuses on employment outcomes experienced by individuals with particular forms of disability. As examples, Ettner, Frank, and Kessler (1997) focus on psychiatric disorders, and Mitchell and Burkhauser (1990) focus on arthritis. Both find important wage and employment differences for those suffering from these particular forms of disability and offer as explanations differences in productivity and differential outcomes by sex. (10)

   The final category of disability research that we highlight here includes studies that attempt to identify the presence of employer discrimination or prejudice. It is this strand of the disability literature that is most relevant to our paper because of its estimates of returns to education by disability status as a by-product of the focus on the role that disability plays in wage determination. This literature presents mixed results about the returns to education for men with disabilities versus those without. Johnson and Lambrinos (1985) estimate the returns to a year of education for non-handicapped men to be 0.054, whereas they find men with handicaps generate a 0.040 return. Baldwin and Johnson (1994) estimate returns to education of 0.059 for men without disabilities, 0.055 for men with disabilities (i.e., having impairments that are subject to little or no prejudice--LP), and 0.023 for men with handicaps (i.e., impairments subject to greater prejudice--MP). Baldwin and Johnson (2000) find returns to education for the non-disabled, the LP impairments, and the MP impairments to equal 0.045, 0.044, and 0.053, finding a difference only for the latter, disabled group. These three papers generally find that workers with disabilities have somewhat lower estimated wage returns to education. Note, however, that a study using more recent data (Hotchkiss 2003, pp. 65-6), finds that those with disabilities experience higher wage returns to education. (11) Additionally, DeLeire (2001), using 1993 data, finds that workers with disabilities experience a 9.3% return to education. (12) These two studies indicate that education may serve as a wage buffer for workers with disabilities.

3. Our Contribution to This Literature

   Our research contributes to this empirical debate in three important ways. First and most importantly, we address disability heterogeneity as influenced by age of disability onset. We provide estimates of the returns to education for those with early-onset disability separate from those with late disability onset and thus are able to address two issues: (i) potential endogeneity of educational investment arising...