Should Disabled Workers Get the Federal Minimum Wage?
President Biden’s $1.9 trillion relief package proposes striking the sub-minimum wage allowance for people with disabilities. Who could be against mandating higher wages for the disabled? As with most policy questions, the answer is complex and getting it wrong can have profoundly negative impact on these vulnerable workers.
Under current law, employers are authorized to compensate disabled workers at a rate below the minimum wage if they can demonstrate that the employee’s disability reduces their productivity. As of October, there are over 1,200 employers that compensate over 300,000 disabled workers at rates below-minimum-wage. The advantage of such a policy is that it enables individuals to join the workforce who might otherwise not be competitive in the labor market.
The problem with U.S. policy on this question is that it doesn’t seem to be working. In 2019, just 19.3 percent of persons with disabilities were employed compared to 66.3 percent of persons without disabilities. Among prime age workers 16 to 64, 30.9 percent of persons with disabilities are employed compared to 74.6 percent of persons without disabilities. The over-40-percent U.S. gap between disabled workers and their non-disabled counterparts is striking and concerning, especially when compared to other countries. In France, Germany, and Italy, the comparable gap between disabled and non-disabled employment is between 10 and 20 percent.
What accounts for this difference? While some of the countries have quotas for employing workers with disabilities, which is probably not a viable policy in a quota-resistant U.S., another part of the difference comes from how these countries integrate both benefits and work opportunities in a one-stop benefit and service structure. By contrast, the U.S. has over 45 government programs spanning numerous providing workforce training making coordinating benefits and training cumbersome.
A greater problem is the way the federal government structures disability insurance payments. If a disabled worker starts working and makes more than $1,310 a month they lose Social Security Disability Insurance and put their Medicare health benefits at full or partial risk. By contrast, the UK’s Personal Independence Payment is received whether the person is employed or not and Ireland and the Netherlands have policies of in-work payments that give bonuses for work without trimming other benefits.
There are a number of different ways to approach improving employment incentives for disabled workers. One is to mimic the UK policy of in-work payments. Another solution might be to enhance the Earned Income Tax Credit (EITC) for disabled workers while eliminating benefit cliff for both the SSDI and Medicare. The EITC is modest for low wage workers without dependents and this tends to hurt disabled workers who are less likely to have children. Expanding the EITC for people with disabilities would address this while not creating a disincentive for employers to hire. Beyond these, improving education and training for the disabled, with special emphasis on increasing digital and other technology skills, would improve market relevance and help the disabled escape the lower-skilled jobs to which they are often limited.
Crucially, we need to remember that work — for disabled and nondisabled persons — plays important roles in social well-being apart from income. Work provides structure, meaning, purpose, and a sense of meaningful contribution to family and community. Employing workers with disabilities isn’t just a matter of GDP and productivity but of inclusion and social solidarity. Market systems do a wonderful job of providing opportunity but the weaker members of society — including the disabled — are often not just left behind but forgotten. When we take steps to recognize the value and enhance the lives of the disabled, we move closer to being the kind of society that truly honors human dignity.
A big minimum wage increase for the disabled sounds simple and easy, and it is also probably counterproductive. The challenge is finding the mix of policy tools and approaches that, taken as a whole, bring as many as possible of these unique and uniquely challenged workers into the economy without inadvertently foreclosing their work opportunities altogether.
Brent Orrell is a resident fellow at the American Enterprise Institute.
