Did the Australian ‘welfare to work’ policy improve the job prospects of people with disabilities?

Whenever the media turn their attention to the Disability Support Pension (DSP), the unspoken assumption is that many of the recipients could have a job instead – if only the personal or political will was there. Recently-published research from the Melbourne Institute shows how challenging the labour market is for people with disability. It raises serious questions about the last decade of ‘welfare to work’ policies which have shifted people with disabilities from higher to lower payments while doing little to improve their job prospects.

The DSP ‘problem’

At 5.4%, the proportion of people of working age receiving the DSP is around the middle of the wealthy OECD countries.

           Proportion of people of working age on disability benefits (2008)

oecd-dsp data08

Source: OECD (2010) ‘Sickness disability and work.’

Growth in reliance on the DSP has slowing for a decade, apart from a spike just after the economic downturn in 2008.

dsp growth

Source: Peter Whiteford, Crawford School ANU, April 2015

You wouldn’t know it from media reports that paint a picture of the relentless rise in the DSP, which is supposed to be caused either by ‘rorting’ of claims or a government strategy to conceal unemployment, depending  on your ideological viewpoint.

The Welfare to Work ‘solution’

For a decade now, Governments have pursued ‘welfare to work’ policies to deal with the so-called ‘DSP problem’. These usually involve diverting people with disabilities from this pension payment to the Newstart Allowance, which is $170 a week lower. Similar policies have been pursued with sole parents, large numbers of whom were diverted from Parenting payment to Newstart. Recent analysis from the National Welfare Rights Network indicates that 173,000 people with disabilities – around one quarter of the total number of recipients – relied on Newstart Allowance in 2014. This is up from 96,000 in 2009 (an 80% rise in five years).

This has been handy for governments searching for budget savings, but it’s not a true measure of a genuine ‘welfare to work’ or ’employment participation’ policy. The true measure is not how many people are shuffled between payments – it is the proportion of people who are able to support themselves by moving into employment.

On that score, welfare to work policies for people with disabilities have failed. A recent report by Broadway and McVicar published by the Melbourne Institute concludes that the policy introduced by the Howard Government in 2006 to shift people with disabilities to Newstart and expand work requirements and supports had:

“no impact on the probability of being on welfare 12 or 24 months later”  (p22)

The effects of welfare to work on the incomes of people with disabilities

We have known that the 2006 welfare to work policy had minimal impact on the job prospects of people with disabilities since its official evaluation was quietly released in 2009 (about a year after it was written). In my paper for the 2011 ASPC conference I used its estimates of the employment impact of the policy to calculate what proportion of those affected – people with disability newly applying for income support after 2006 – were financially better or worse off. They would be better off to the extent that the policy substantially improved their job prospects, and worse off to the degree that they were merely diverted to the lower Newstart Allowance without finding work.

This was one of many hotly contested issues at the time the ‘welfare to work ‘ legislation was brought before the Parliament. The Employment Department’s submission to a Senate Inquiry into the Bill asserted that:

Those people will absolutely be better off than if they were sitting on the disability support pension or parenting payment single without work’. (Dept of Employment and Workplace relations submission to Senate Community Affairs Committee Inquiry into the ‘Employment and Workplace Relations (Welfare to Work) Bill 2005’).

My conclusion was that only 3% of the first cohort of 97,000 people with disabilities affected by the policy during 2006-07 were better off (having secured fulltime jobs they would not otherwise have obtained) but 29% were worse off (having been diverted from the DSP to Newstart Allowance without finding fulltime employment). Two thirds were not affected by the change, as they would have been granted the DSP (or not) with or without  the new policy.

Impact of Welfare to Work on the first cohort of people with disabilities affected (in 2006-07)

wtw impact of incomes of pwd

The mechanics of the 2006 Welfare to Work policy

The main components of the 2006 welfare to work policy were:

  • Diversion of new applicants for income support assessed as having a ‘partial capacity to work’ (able to work 15-30 hours a week) from DSP (which they would previously have received)  to NSA and other payments (which were usually much lower)
  • New work requirements for this group, to search for and accept employment of up to 15 hours a week (under the DSP there were no activity requirements)
  • Expansion of Job Network and Disability Employment Services to assist them to find employment (most went into the less-resourced Job Network rather than specialist disability employment services).

The idea was that, via a combination of new incentives (‘activation’) and supports (employment services), more people with disabilities would avoid long-term reliance on the DSP. There can be no doubt this was a high risk for people with disabilities at that time (and now). DSP recipients were more likely to die on the payment than to leave it for a fulltime job. So leaving the system as it is is not an option that will improve the lives of people with disabilities.

‘Activation’ policies can be effective in improving the job prospects of people on income support. The trouble was that the government mis-diagnosed the problem by putting more weight on individual incentives and less on employment capacity building and reform of the labour market.

What the official evaluation found

The official evaluation of the ‘welfare to work’ policy estimated that it increased the probability that people with disabilities who claimed income support during 2006-07 left income support (usually for employment) by 10 percentage points six months later. That’s not a bad result for any employment program, but the sting in the tail is that even after the reforms only 12% left income support within a year of claiming. In other words, their probability of leaving income support if they had continued to be granted the DSP without any activity requirements and supports was just 2%!

I could no longer find this evaluation on the Department of Employment website, but here is the graph comparing the probability of leaving benefits pre-reform (in 2015-06) and post-reform (2006-07).  By comparing exits from benefits among these two cohorts of people with a ‘partial work capacity’, the evaluation estimated the impact of  the policy. The impact is represented by the gap between the top two continuous lines in the graph.

Graph 9: Proportion of people with a partial work capacity who left income support before and after the ‘Welfare to Work’ policy

wtw employment impact for pwd

Source: Welfare to Work evaluation, p51
Note: Top continuous line shows the % who left income support after claiming during 2006-07 (after Welfare to Work). Green line near the bottom shows % who left income support after claiming in 2005-06 (before Welfare to Work). The ‘gap’ between the two lines is approx 10 percentage points after six months (26 weeks) on income support.

A ‘glass half full’ interpretation of these figures would conclude that: at least 10% more people with disabilities moved into employment as a result of the policy. But it isn’t necessary to reduce people’s income support by $170 a week to do this. It was the ‘activation’ and employment supports that did this, not the diversion of people from one payment to another.

What the Melbourne Institute report found

Even so, the Melbourne Institute research shows that the ‘glass half full’ conclusion was wrong. To assess the impact of a policy on reliance on income support, we also have to take account of the proportion of former recipients who return to benefits. That’s what the Broadway and McVicar study did. The table below shows their key conclusions regarding the impact of the welfare to work policy on reliance on income support 12 months after the 2006-07 cohort of claimants received income support.

exits and returns-pwd05-07

Source: Data are from Broadway & McVicar, p18.

As the official evaluation found, the post-welfare to work exits from income support were much higher (37% instead of 24%) than before the policy was introduced. But the probability that people who left income support returned within the same 12 month period was also much greater (24% instead of 9%). This fully negated the benefits of the higher exits, so that in net terms the policy had no impact on the probability that people with disability had left income support 12 months after claiming it.

Further analysis revealed the main reason for the higher ‘return’ rate: the vast majority of new claimants for income support who were diverted from DSP to NSA subsequently successfully claimed the DSP. So in most cases the policy did not prevent access to the DSP, it postponed it. Nevertheless, a growing minority of people with a partial work capacity must have remained on NSA for a long time because we know the numbers of Newstart recipients with partial work capacity has ballooned since the policy was introduced in 2006.  Few of them seem to leave income support altogether.

The elephant in the room: reform of employment practices

So why did welfare to work fail people with disabilities and what can be done about it? Broadway and McVicar nail it in their conclusion:

“Disability reforms need to do more than simply reduce the generosity and tighten the conditionality of payments – with the risk of exacerbating the already high levels of poverty experienced by people with disability in some countries – if they are to substantially impact on welfare dependency among people with disability. People with disability face barriers to employment that these measures, in isolation, are unlikely to overcome.One aspect missing from these reforms is any serious attempt to address the incentives of employers and potential employers of people with disability.”  Broadway & McVicar (2015), p22.

These words should be chiselled in stone at the entrance of Parliament House in Canberra so that the next time Members and Senators vote on welfare reforms affecting people with disabilities they don’t back another policy failure.

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