Law, Economics and Accommodations in the Internal Labor Market

This article joins the debate over whether the Americans with Disabilities Act's (ADA) accommodation mandate contributes to the decline in the employment rate among working-age people with disabilities. This debate pits a rational choice view of employers and accommodations against a discriminatory choice view. Rational choice scholars suggest that the ADA's mandate that employers provide reasonable accommodations to workers with disabilities makes these workers more expensive than workers without disabilities. Given the choice between equally productive workers, these scholars expect rational employers to hire the less costly worker --- that is, the worker without a disability. In sum, the ADA's accommodation mandate makes each unit of labor supplied by workers with disabilities more costly and, therefore, employers demand less of it. This article does not critique the rational choice position. Rather, it joins the debate in support of the discriminatory choice view of the relationship between accommodations costs and the employment rate of working-age people with disabilities. Several empirical studies have found that accommodations frequently impose no added cost and, when they have a cost, are inexpensive. Most important, they found that the benefits employers derive from accommodations frequently outweigh their costs - that is, accommodations benefit employers as well as their employees with disabilities. These studies' implicit message is that the low and declining employment rate among working-age people with disabilities cannot be blamed on the ADA's accommodation mandate or, more precisely, the costs of the accommodations it requires. The cause must lie elsewhere, perhaps with irrational, discriminatory choices made by employers who refuse to hire workers with disabilities. This article provides the theory and analysis which explain the results of these empirical studies. It discusses why accommodating employees with disabilities often imposes no costs on the employers providing accommodations and why accommodations may, in appropriate circumstances, yield net benefits for those employers. The analysis relies on internal labor market theory which is a labor economics theory premised on the understanding that barriers to competition can increase the efficiency of the relationships between employers and employees. This article argues that employers' accommodations and employees' impairments add competitive barriers which increase the efficiency of relationships between employers and their employees with disabilities. Accommodations and workers' impairments tighten the bonds between the employer and the employee and thereby make possible a range of cost cutting and productivity-enhancing behaviors that yield larger dividends for the employer. Thus, the cost of an accommodation is not the only factor that is relevant to determining whether an employer will benefit from providing an accommodation to an incumbent employee with an impairment. The willingness of the parties to seize the opportunity to make their relationship more productive and cost efficient - an opportunity created by the accommodation and impairment - is a critical factor in determining whether an employer benefits from accommodating an employee with an impairment.