Disability and Workers’ Productivities in Australia: Facts, Measurements and Estimates

Individuals with disabilities encounter persistent barriers to educational attainment and labour market participation, resulting in disparities in labour productivity and earnings. This study estimates the productivity effects of disability on Australian workers. Building on the framework of Katz and Murphy (1992), we model labour productivity as comprising two distinct components: pure labour efficiency, reflecting ability or physical effort, and pure experience efficiency, representing human capital accumulated through labour market participation. Using data from the Household, Income and Labour Dynamics in Australia (HILDA) survey and a two-stage Heckman selection model, we estimate life-cycle profiles of these components by education level and disability status. Our results indicate that the productivity gap associated with disability is primarily attributable to lower labour efficiency, with a smaller contribution from reduced experience efficiency. The labour component predominantly drives workers’ productivity, while the experience component becomes increasingly significant for less-educated workers over their life cycles. Finally, estimates from a constant elasticity of substitution production function reveal a high degree of complementarity between heterogeneous labour inputs.