The Americans with Disabilities Act
With good intentions, the Americans for Disabilities Act (ADA) prohibits firms from discriminating against disabled or handicapped workers and enables them to sue for discrimination in employment and firings. The Act requires employers to make reasonable accommodations for the handicapped. Economic theory suggests that such command-and-control approaches will have bad unintended consequences. What is the reality?
by Fred E. Foldvary, Senior Editor
The ADA has caused an 8 percent drop in the employment of men with disabilities. Employment declined for all ages and regardless of the type of handicap. Those most affected have been the young, the less educated, and those with mental handicaps.
The problem begins with the terminology itself. The disabled used to be popularly called the "handicapped." There were posters that said "hire the handicapped." The origin of the term is "hand in cap," from a game in which forfeits or lost points were drawn from a cap or hat. In a race or other competition, handicaps are disadvantages given to the superior contestants, or advantages given to those who are not as swift.
A handicap is therefore a disadvantage that hampers a person in some pursuit. They are not unable to do the job, but just have some impediment that makes it more difficult, and they may need some extra help. The term "disabled" on the other hand implies that something is wrong that makes one unable to do the job. "Disability" implies being unable, unfit, and ineffective.
When the government changed the terminology from "handicapped" to "disabled," it did a disservice to the handicapped. It made the help to the handicapped seem like charity rather than what it should be, a little help for those able to do the job. Also, many handicapped are fully able to do the job, but there is the wrong perception that someone in a wheelchair or with poor vision can't work as well, and "hire the handicapped" helps to overcome this unwarranted prejudice.
When the ADA enabled the handicapped to sue employers, it created a major handicap that was not there before. Many lawsuits under the ADA occur when employees are terminated. Charges can be filed with the Equal Employment Opportunities Commission for discharges, layoffs, or suspensions of employment. Firms have reacted to the costs of litigation by reducing the hiring of the handicapped.
(See Thomas DeLeire, "The Unintended Consequences of the Americans with Disabilities Act," Regulation, Cato Institute, Vol. 23, No. 1 (2000), available at: ADA consequences .)
The ADA raises the cost of hiring the handicapped by requiring accommodations of handicaps and by enabling those let go to sue. Potential lawsuits with high awards are a cost of hiring the handicapped, which greatly reduces the willingness of firms to hire them. It is a good example of the failure of regulations. Government creates the illusion of helping the disabled, but this backfires, as fewer are hired, not more.
The sound economic approach is the way they treat the handicapped at competitions - give them some advantage that puts the contestants on an equal playing field. If the government really wanted to helped the handicapped, they would stop calling them "disabled" and then provide subsidies to firms sufficient for the handicapped to be as productive, after the help, as anyone else.
Why is this not done? Because the subsidies would be in the government's budget as an expense, and the expense would be borne by all the taxpayers. Instead, command-control regulation unjustly forces the cost on firms. The ADA regulations are a tax that burdens both business and the handicapped or "disabled." A single tax only on land rent would wipe out this regulatory tax just as it would eliminate the more explicit taxes on production.
Once again, greedy politicians exploit the ignorance of the public. It is up to the disabled or handicapped to organize to change the policy to something that would truly help them rather than enrich the few who get lawsuit awards at the expense of the many who are indeed able to do work but don't get hired.
-- Fred Foldvary
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Copyright 2000 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.