The effect of disability on labour market outcomes
Master Thesis
2019
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Abstract
This study estimated the effect of disability, disability type and disability grants on labour force participation, employment and wages using NIDS data from Wave 1 to Wave 4. Data was analysed as a panel to account for the effects over time. A pooled OLS, a random effects and a fixed effects model were applied on the panel dataset to explain the effects of disability, disability type and disability grants on labour market outcomes. To determine which of these models was the most appropriate, specification tests were performed. The Hausman test revealed that the fixed effects model was the most appropriate model in explaining the panel dataset. Results from the fixed effects model indicated that disability had no effect on labour force participation and employment but had a negative effect on wages, as wages were likely to decrease by 8% after an individual became disabled. Disability grants had disincentive effects on labour supply as grant recipients were 12% less likely to participate in the labour market and 8% less likely to be employed. Disability type was found to have no effect on labour force participation, employment and wages except for individuals with sight/hearing and speech disabilities as their wages were likely to decrease by 14% after individuals developed problems with sight, hearing or speech. Results from the pooled OLS and random effects model however found significant effects of disability, disability type and disability grants on all labour market outcomes. Despite estimation biases that do not account for self-selection or the lack of correlation between unobservable characteristics and independent variables, random effects models allow for the generalization of results beyond the sample and may be of interest to policy makers. This however requires further investigation using multilevel models that correct for selection bias. This study concluded that disability had negative effects on labour market outcomes particularly on wages, demonstrating that PWDs remain economically disadvantaged. The implementation of policies that prioritize equity for PWDs in workplaces is therefore recommended.
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Ongere, R. 2019. The effect of disability on labour market outcomes.