Disability and workers' productivities in Australia: Facts, measurements and estimates
Abstract: Individuals with disabilities face persistent barriers to education and labour market participation, resulting in lower productivity and earnings. This study quantifies the productivity effects of disability among Australian workers through a two-part analysis combining empirical estimation and structural modelling. Using HILDA survey data, a two-stage Heckman selection model decomposes labour productivity—following Katz and Murphy (1992)—into labour efficiency and experience efficiency. Results show that the disability-related productivity gap is mainly driven by lower labour efficiency, with experience efficiency playing a smaller but increasing role for less-educated workers over the life cycle. A structural model is then developed to evaluate the lifetime costs of disabilities and the benefits of social insurance programs.