Consequences of employment protection? The case of the Americans with Disabilities Act

The Americans with Disabilities Act (ADA) requires employers to accommodate disabled workers and outlaws discrimination against the disabled in hiring, firing, and pay. Although the ADA was meant to increase the employment of the disabled, the net theoretical effects are ambiguous. For men of all working ages and women under 40, Current Population Survey data show a sharp drop in the employment of disabled workers after the ADA went into effect. Although the number of disabled individuals receiving disability transfers increased at the same time, the decline in employment of the disabled does not appear to be explained by increasing transfers alone, leaving the ADA as a likely cause. Consistent with this view, the effects of the ADA appear larger in medium-size firms, possibly because small firms were exempt from the ADA. The effects are also larger in states with more ADA-related discrimination charges.