Sickness and disability policies are rapidly moving to centre stage in the economic policy agenda of many OECD countries. Even before the onset of the recent recession too many people of working age who were able to work relied on sickness and disability benefits as their main source of income, and the employment rate of those reporting disabling conditions was low. The economic crisis has added to this pressure by raising the possibility that many of the long-term unemployed may end up on sickness and disability benefits, similar to what happened in previous downturns. In this context, there is an urgent need to address this “medicalisation” of labour market problems by tackling the widespread use of disability benefits across the OECD and promoting labour market participation of people with disability. Many people with health problems can work and indeed want to work in ways compatible with their health condition, so any policy based on the assumption that they cannot work is fundamentally flawed. Helping people to work is potentially a “win-win” policy: It helps people avoid exclusion and have higher incomes while raising the prospect of more effective labour supply and higher economic output in the long term.

Too many workers leave the labour market permanently due to health problems or disability, and too few people with reduced work capacity manage to remain in employment. This is a social and economic tragedy that is common to virtually all OECD countries. Economic and labour market changes are increasingly proving an obstacle for people with health problems to return to work or stay in their job. In fact, until the recent recession struck the labour market in 2008, disability was much more prevalent than unemployment across the OECD countries, and spending on disability benefits was typically twice as high as spending on unemployment benefits, and even 5-10 times higher in some cases, especially in the Nordic and English-speaking countries. These facts seem counterintuitive when one considers that the health status of the working-age population has been improving over time, as shown by several health indicators. The deep economic downturn and the associated jobs crisis have shifted the policy focus to tackling rising unemployment. However, past experience suggests that downturns tend to hit disadvantaged people more than the general population and, with a time lag of a few months or even years, increase the disability beneficiary caseload, which then typically stays on a higher structural level in the subsequent recovery. Therefore, the current jobs crisis should not be an excuse for delaying urgently needed sickness and disability reforms.

Despite the recent economic downturn, globalization, together with demographic and technology transitions, remain powerful forces of change in the labour markets of OECD countries. This chapter argues that integrating more fully into the labour market people with disability is essential in meeting economic and social challenges arising from these broad drivers of change. The recent economic downturn is further reinforcing this urgent need, as people with disability have been hard hit by job losses and the reduction in job vacancies. This may push them to the margin of the labour market, raising the risk of further structural increases in the disability beneficiary caseload.

What are the main challenges policy makers across the OECD will need to address in the future? This chapter highlights the key outcomes and trends in the field of sickness and disability during the past 10-15 years, focusing on four areas: labour market integration of people with disability and workers with reduced work capacity; financial resources of those people; costs of sickness and disability benefits schemes; and beneficiary dynamics. It concludes that despite reforms and good economic conditions until recently, employment, unemployment, income and poverty outcomes have not improved for people with disability. Disability benefits have become the main working-age benefit in most countries and their role as a benefit of last resort is still increasing in many cases. However, outcomes also suggest that policy can have a large influence on beneficiary developments: Several countries have recently seen a promising turnaround in beneficiary trends.

Sickness and disability outcomes are still disappointing in most countries, with low employment rates and high benefit dependence, calling for further often unpopular reforms. In the past 10-15 years, countries have started to shift their approach away from merely paying benefits to people with disability towards helping them stay in, or return to, work. This chapter outlines the main directions of recent reforms across the OECD and explores the question whether or not changes have gone far enough to reduce benefit dependency and increase employment rates. The chapter concludes that i) policy matters: reform has had a major impact on the observed outcomes, especially the disability beneficiary rate; and ii) policies are moving in the right direction, with considerable convergence of policies despite continued structural differences. However, in most countries more needs to be done.

This chapter addresses the key challenges and recent developments in changing the current disability benefit schemes, which are still too passive in nature, into employment-promoting policy tools. Key elements in the transformation process are a new way of assessing work capacity implemented, thus, benefit eligibility; a new activation and mutual-obligations stance applied at the application phase; a stronger focus on reassessments of benefit eligibility and work capacity of current or long-term benefit recipients; and improved work incentives to make sure work always pays. The chapter concludes that what is needed is to bring the disability benefit scheme closer in all its aspects to existing unemployment benefit schemes and questions the need for distinguishing unemployment and disability as two distinct contingencies.

Employers are key players in preventing health problems at work and facilitating a swift return to work for people absent from work due to sickness. This chapter sets out examples of good practice across the OECD to provide an effective combination of responsibilities and supports for employers, including stronger financial incentives to retain workers. It also seeks answers to the question how to provide a balanced policy package so to promote employment of people with health problems or disability through both job retention and new recruitment. Finally it also addresses the key role general practitioners are playing in the early phase of a sickness absence and ways to strengthen the employment orientation of doctors’ sick-listing practices.

More people with disability could work if they were helped with the right supports at the right time. The chapter argues that much can be gained from improvements in three areas: better cross-agency co-operation; systematic and tailored engagement with clients; and improved institutional incentives. Currently, in many countries too many actors and agencies are involved in benefit and service provision; they do not co-operate effectively; they do not have sufficient incentives to promote the new employment focus of policy; and they lack the tools and resources to provide timely services in the mix needed by the client. In seeking to improve their systems and measures, most countries face barriers stemming from the lack of data and evaluation of programmes currently in place.