OECD, Directorate for Employment, Labour and Social Affairs

OECD/UMD ConferenceLabour activation in times of high unemploymentParis, 14-15 November 2011

CRISIS, UNEMPLOYMENT ANDDISABILITY BENEFIT CLAIMS:

Does structural reform matter?

Christopher Prinz

Employment Analysis and Policy Division

www.oecd.org/els/disability

OUTLINE OF THE PRESENTATION

• Unemployment and disability

• Post-crisis disability beneficiary trends

• Long-term disability beneficiary trends

• Programmes and policies that seem to work

• New challenges and conclusions

UNEMPLOYMENT AND DISABILITYDisability is often higher than unemployment

Source: OECD (data refer to the year 2008).

UNEMPLOYMENT AND DISABILITYSome thoughts on their relationship

• People with disability are likely to be laid-off first in the wake of downsizing or an economic downturn

• Long-term unemployment is likely to worsen health and can lead to disability

• Once on disability benefit, people never return back to the labour market (contrary to unemployment)

• Disability as hidden unemployment and, vice versa, unemployment as hidden disability

Unemployment and disability benefit recipiency rates in four countries, 1970-2010

Source: updated from OECD (2010), Sickness, Disability and Work: Breaking the Barriers, OECD Publishing, Paris.

POST-CRISIS TRENDSCausal links as well as substitution effects

Australia United States

SwedenNetherlands

0

2

4

6

8

10

12

0

1

2

3

4

5

6

7

1970 1975 1980 1985 1990 1995 2000 2005 2010

0

1

2

3

4

5

6

7

8

9

0

2

4

6

8

10

12

1970 1975 1980 1985 1990 1995 2000 2005 20100

2

4

6

8

10

12

0

2

4

6

8

10

12

1970 1975 1980 1985 1990 1995 2000 2005 2010

0

2

4

6

8

10

12

0

1

2

3

4

5

6

7

1970 1975 1980 1985 1990 1995 2000 2005 2010

Disability recipiency rate(% of the working-age population (aged 20-64)

Long-term unemployment rate(% of total labour force)

Harmonised unemployment rate(% of total labour force)Right-side scale

POST-CRISIS TRENDSStructural reforms seem to make a difference …

Annual average growth of disability benefit caseloads, before and after 2007

Source: OECD (2011), Employment Outlook, OECD Publishing, Paris.

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

2000-07 2007-10

POST-CRISIS TRENDS… but data availability limits the conclusions

Average annual growth in the number of new disability benefit claims, before and after 2007

Source: OECD.

-40

-30

-20

-10

0

10

20

30

HU

N

SWE

NZL

PRT

MEX

CHE

DEU CZ

E

NLD ES

T

AU

T

NO

R

FIN

JPN

USA

GBR AU

S

DN

K

SVN

BEL

CAN

ISR

POL

SVK

2000-2007 2007-2009

POST-CRISIS TRENDSPreliminary conclusions

• Several countries have seen increases in disability beneficiary rates in the aftermath of the great recession

• This is in line with findings from previous downturns

• Time lag from unemployment to disability implies that it is too early to conclude on the impact of the crisis

• Moreover, easier/longer access to unemployment benefit in this crisis has reduced the pressure on disability

• Countries that have embarked on structural reform prior to the crisis have often seen a continuation in the trend decline

• The resilience of structural disability reform is promising

LONG-TERM TRENDSDisability beneficiary rates are rising fast

Disability benefit recipients in per cent of the population aged 20-64in 15 OECD countries, early 1980s and 2008

Source: OECD (2010), Sickness, Disability and Work: Breaking the Barriers, OECD Publishing, Paris.

0

2

4

6

8

10

12

1980 2007 (↘)

LONG-TERM TRENDSCan non-policy factors explain the trend?

• Demography?

• Explains only some of the trend

• Health?

• Objective measures have improved

• Labour markets?

• Temporary employment

• Industry structures

• Working conditions

LONG-TERM TRENDSConclusion on policy factors

• Disability benefit has become the main working-age benefit in many OECD countries (benefit of last resort)

• Driven by policy

• Reform of unemployment benefit and social assistance schemes (activation agenda)

• Reform of pension schemes (phasing-out of early retirement)

• Absence of equally comprehensive disability reform

Outcomes are the result of a wrong policy choice

Urgent need to consider structural disability reform

EFFECTIVE POLICIES(1) Improved financial incentives

• Strengthening financial incentives for employers

• e.g. experience-rated premiums for sickness, work injury and disability benefits; flexible hiring incentives

• Making work pay for individuals

• e.g. compensation for earnings loss or wage supplement; better phase-out of benefits; benefit suspension rules

• Addressing incentives for authorities and providers

• e.g. outcome-focus to improve quality and efficiency; performance targets, benchmarking, direct incentives

EFFECTIVE POLICIES(2) Stronger responsibilities and activation

• Strengthening individual responsibilities

• e.g. cooperation requirements, training obligation, regular interviews; reassessment and reapplication

• Enforcing prevention and monitoring responsibilities

• e.g. absence monitoring and systematic follow-up; occupational health services; return-to-work plans

• Engaging with clients more systematically & earlier

• e.g. easy access to information and employment supports; early identification and intervention if needed

EFFECTIVE POLICIES(3) Better assessment and system structures

• Assessing capacity not incapacity

• e.g. work capacity assessment; different treatment of those with partial capacity; assess the unemployed

• Enabling employers, doctors and benefit authorities

• e.g. targeted employer supports; absence duration guidelines for doctors; special medical services

• Improving cross-agency cooperation

• e.g. reciprocal information exchange; cross-funding; bringing together or merging of institutions

EFFECTIVE POLICIESPolicy has changed remarkably in many countries …

-15

-10

-5

0

5

10

15

20

25

Integration policy change 1985-2000 Integration policy change 2000-2007

Compensation policy change 1985-2000 Compensation policy change 2000-2007

Source: OECD (2010), Sickness, Disability and Work: Breaking the Barriers, OECD Publishing, Paris.

EFFECTIVE POLICIES… but “active” spending generally remains low

Proportion of vocational rehabilitation and employment-related public spending in total incapacity-related spending, selected OECD countries, 2000-2007

Source: OECD (Sickness, Disability and Work review)

0

2

4

6

8

10

12

14

16

Around 2000 2007

• Disability benefit claims increasingly for mental disorders

• One-third of all claims; half to three-quarters among young claimants

• At the same time, most people with mental disorder have a job

• Around half of those with severe and two-thirds with a common mental disorder are employed

• Moves onto disability benefit generally through unemployment

• People with a mental disorder access a range of different working-age benefits, disability benefit being just one of them

NEW CHALLENGESMental ill-health: a new labour market policy issue

NEW CHALLENGESPeople with mental ill-health access different benefits

Source: OECD (Mental Health and Work review)

Proportion of the working-age population receiving a benefit by mental health statusand by type of benefit received, latest available year

-5

5

15

25

35

45

55

DB UB LP All DB UB SA All DB UB SA All DB UB SA All DB UB SA All

Australia Belgium Norway Sweden United States

Severe disorder Moderate disorder No disorder

• Resilience of comprehensive reform

• Structural reform makes a difference in a crisis

• Policy reorientation is needed to address underlying long-term structural issues

• The disability problem was caused, and will be solved, by policy

• Structural reform involves critical policy choices

• Need to transform sickness and disability schemes into labour market programmes

• Is the distinction between unemployment and disability useful?

• Are systems equipped to deal with mental ill-health?

CONCLUSIONS

THANK YOU

For further details and OECD publications:

www.oecd.org/els/disability