The Economic Consequences of Disability

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Abstract
Using two longitudinal data sets, the Panel Study of Income Dynamics and the German Socio-Economic Panel, we compare the relative success of United States and German disability policy in ameliorating the consequences of work-related health impairments. Comparing cross sections, we find Germans with disabilities on average earn only slightly less and enjoy the same household income as those without disabilities, while Americans with disabilities earn substantially less and face an income gap of more than 25% compared to those without disabilities. However, when we use our multiperiod data to follow the transition into disability of previously nondisabled individuals, the associated change in income is smaller than that suggested by our cross-sectional estimates. Our results suggest that even if the Americans With Disabilities Act is successful in increasing the earnings of people with disabilities, it may not close the income gap for those whose disabilities compound more fundamental labor-market disadvantages such as poor education or lack of job skills.