Effect of Disability Benefit Income Replacement Rates on Employment and Risk of Poverty for People with Disabilities – Working Paper

Background: In response to increases in the number of people in receipt of disability benefits many countries have reduced their income replacement rate in order to increase employment incentives. Using new OECD data on disability benefit income replacement rates, we investigate the relationship between adequacy, and employment and poverty rates among people with disabilities for 12 countries in Europe.Methods: We estimate multilevel logistic regression models for both employment status and poverty using data from the European Union Statistics on Income and Living Conditions (EU-SILC) alongside estimates of disability benefit income replacement rate for population sub-groups in each country from the OECD. We estimate associations between the income replacement rate with disability-employment and disability-poverty gaps (the difference in employment and poverty between disabled and non-disabled people). Sub-group analysis was conducted for age and sex. Results : For each additional percentage point increase in income replacement rate there was a 0.30 percentage point reduction in the disability employment gap (95%CI 0.06 to 0.53) and a 0.12 percentage point reduction in the disability poverty gap (95%CI 0.02 to 0.21). The association between higher disability benefit income replacement rates and reduced disability employment gap was similar across all age groups, whilst the association with reductions in the disability poverty gap was strongest in the 50-64 year olds age group.Conclusion: Reducing adequacy of disability benefits may not lead to improved employment prospects and may increase levels of poverty amongst people with disabilities.