Measuring the Effects of Employment Protection Policies for the Disabled: Theory and Evidence from the Americans with Disabilities Act

Abstract

We evaluate the Americans with Disabilities Act (ADA) using a directed search model in which firms post health-contingent wage contracts. We theoretically show that the ADA benefits disabled workers at the expense of non-disabled workers if firms face a high penalty for preferentially hiring non-disabled, whereas the disabled are worse off if the expected cost from terminating a disabled employee is high. Our estimation results imply that disabled job-finding and job-separation rates decreased, suggesting that for firms, the cost of hiring discrimination is lower than disabled-worker termination. Overall, the ADA caused a 2.2 percentage point decline in disabled employment rates.