The last word: Why work? Disincentives to employment in the benefits system

CrossCurrents

By Dr. Richard Warner

At least half of people with schizophrenia or a similar mental illness are capable of competitive work. This may seem improbable to many mental health professionals, few of whose patients may be working, but the evidence exists.

In studies of patients with schizophrenia in routine care in northern Italy, at least half work – a quarter full-time. In the developing world, people with serious mental illness are very likely to be employed. Two-thirds of individuals with chronic schizophrenia in a recent study in Chennai, India, were working, mostly in mainstream jobs; three-quarters in Madras were employed; and more than half of those in a study in urban Chandigahr, India, had held full-time paid employment for the past two years. In nearly all controlled studies of the modern vocational approach called supported employment, more than half of those with serious mental illness achieved competitive employment, whether the study was conducted in the United States, Canada, Australia or Europe. This was two to six times the proportion in the control groups.

Employment rates for people with schizophrenia in routine treatment vary. A recent EQOLISE (www.eqolise.sgul.ac.uk study of supported employment in six European cities found that in Heilbronn, Germany, 60 per cent of participants with schizophrenia were working, whereas 10 per cent or less were employed in Lyon and Lille in France, or in London, England. In most studies, only 15 to 20 per cent of people with psychotic illness in developed countries were working.

Why the big differences? The answer appears to lie in disincentives to employment in the disability pension system. A few years ago, psychiatrist and economic development expert Dr. Paul Polak and I gathered information on income and expenses from people with long-term mental illness in Boulder, Colorado. We discovered that the income difference between being employed and unemployed offered little economic incentive to work. The total income of people who worked part-time was only slightly more than that of those who were unemployed, largely because when people started to work, many lost part of the disability pension (usually 50 cents on the dollar) and part of their rent subsidy (25 cents on the dollar). For the average part-time worker, the loss amounted to what economists term an “implicit tax” of 64 per cent on earned income. The situation was better for full-time workers, who met an implicit tax of only 23 per cent on their earnings, but because of the economic obstacles to part-time work, few people in our study achieved full-time employment.

The EQOLISE study demonstrated that in Britain and the Netherlands, where disincentives to employment in the disability pension system are high, the impact of the vocational intervention was significantly less than in Italy and Bulgaria, where disincentives were negligible. Other surveys have shown that in Germany and Italy, where disincentives in the national disability pension schemes are less severe and where vocational services tend to be well developed, employment rates for people with mental illness are better. Similarly, researchers in India attribute the high rate of employment among mentally ill people to the lack of disability support. Whereas more than half of people with schizophrenia in U.S. and British cities receive disability benefits, the equivalent proportion in cities in India or Colombia is zero to four per cent. Clearly, it is not psychosis per se that imposes high rates of idleness; it is the economic system.

Disability pension systems can be redesigned to minimize disincentives. The United States has two major disability support programs – Supplemental Security Income (SSI) and Social Security Disability Income (SSDI). Under both programs, support payments decline when people accept employment. SSI recipients lose 50 cents on the dollar when earnings exceed a small amount. SSDI recipients lose nothing until they earn a much greater amount, but then lose it all. In practice, SSDI creates fewer disincentives to work, as recipients continue to collect full benefits as long as they don’t earn too much. Disincentives are more severe in Britain, as disabled people run the risk of losing all their benefits if they earn more than a small weekly amount, and this “earnings disregard” is permitted for only a few months. Since a full benefits package is worth more than a full-time minimum-wage job, there is little incentive to work. Consequently, less than five per cent of those receiving benefits for two years return to work. Ontario’s benefits system is similar to Britain’s.

Italy has less severe work disincentives than the United States or Britain because fewer people qualify for benefits – the person must be “80 per cent disabled.” This system is possible because 80 to 90 per cent of Italians with psychosis live with and are supported by their families. The scarcity of governmental income support increases the incentive to use vocational services, which are often quite comprehensive. Beyond these formal system features, moreover, many Italians who receive disability benefits continue to work in the “black market” labour force – along the beaches in summer and on family farms.

At the policy level, econometric labour-supply models can inform legislators what the effects of benefits policy reforms will be. At the clinical level, a valuable approach is to advise clients about the remedies that are already in place to ease disincentives. A British study reported success with advisors who gave clients information about return-to-work benefits. A U.S. study demonstrated that people receiving benefits counselling improved their income by $1,250 per year more than those who didn’t get counselling. Where benefits counsellors are not available, case managers can assist clients by learning enough about benefits regulations to help them make good decisions about work and income.

Dr. Richard Warner is the director of Colorado Recovery in Boulder, Colorado.