Revisiting the Employment Effects of the Americans with Disabilities Act

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In this paper, we revisit the evidence on the employment effects of the Americans with Disabilities Act (ADA) of 1990. The existing literature has assessed the impact of the policy by comparing the labor market outcomes of individuals who report limitations to their ability to work (work limitations) and the labor market outcomes of individuals who do not. Since the ADA applies to all disabled individuals, not just those with work limitations, we rely on rich health and limitation information from the Survey of Income and Program Participation to draw a distinction between individuals with work limitations and individuals with other types of limitations that do not necessarily impact their ability to work (functional limitations). Consistently with the literature, over a longer sample period than used in previous work, we find that the ADA has had a negative effect on the employment and wages of individuals with work limitations. However, we also find that the policy has had a substantial and significant positive effect on the employment of individuals with physical or mental limitations that are not work-impacting, even when severe, with virtually no effect on their wages. To interpret this evidence, we develop a search and matching model of the labor market in which a worker’s productivity and value of non-market time vary with a worker’s disability status and firms face different costs to employ, accommodate, and separate from different types of workers, with and without disabilities. We then use the model to evaluate the heterogeneous impacts of the policy on the employment and wages of work disabled and non-work disabled workers, to examine the relative importance of the different components of the policy on these outcomes, and to compare alternative designs of it.