40 A. S¸ en-Tas¸bas¸ı One of the areas where progress has been made is the elimination of child labor. Following a proactive policy, basic constitutional, statutory and developmental measures to address the problem have been taken. The Turkish Constitution clearly stipulates that “no one shall be employed in work that is unsuitable for their age, gender or capabilities.” Primary education is compulsory and free of charge in public schools for all citizens, and is guaranteed by the Constitution. The Turkish government has also significantly improved its efforts to prevent forced labor and human trafficking. Although the Turkish government can be considered as active on gender dis- crimination, it is ineffective in addressing and abolishing discrimination against other vulnerable groups and minorities. Turkey does not have an anti-racism or anti-discrimination National Action Plan. The gender pay gap still exists and women cannot participate in the labor force as actively as men do. On the other hand, government policies have exacerbated problems in other areas. In particular, Turkey’s legislative system is weak on many fronts and there are excessive restrictions on workers’ freedom of association. Workers are not protected from government interference as defined in Convention 87, Articles 2–4. Officials report that “the predominant union in Turkey has maintained a close relationship with the government by restricting its bargaining to wage-related issues and refraining from pressing for broader rights” and that “. . . the government actively promotes the growth of certain unions over others” (Verite´ 2012, p. 12). Workers in Turkey do not have complete freedom to join international labor organizations, and are still subject to anti-union discrimination. Appropriate measures to encourage collective bargaining as defined in Convention 98 are not developed. There are still limitations to the right to strike and the police use physical force to suppress worker strikes and protests (see ITUC Survey of Violations of Trade Union Rights: Turkey, for more on the issue). Poor working conditions are rife in Turkey, with excessive overtime violations, lack of mechanisms to track and monitor cases of sexual harassment, frequent violations of health and safety at work, and wage payment violations being the most serious issues. In order to align Turkish legislation with the EU Directive on health and safety at work, Occupational Safety and Health and the Occupational Health Services conventions of the ILO, the Turkish Parliament approved the new Work and Safety Law in June 2012. The Law requires, by mid-2014, employers to assign work safety specialists, employee representatives and medical personnel, and to provide occupational safety training to employees. Despite such efforts, gaps and weaknesses remain in implementation. Overall, it can be concluded that labor indicators in Turkey still lag behind EU and ILO standards, especially in terms of freedom, equity, security and dignity. It is hoped that the findings of the analysis and the discussion of them in this chapter open an avenue for further empirical research, particularly on the labor cost effects of the core standards.
2 How Competitive Is Turkey in Meeting International Labor Standards and in. . . 41 References Balassa B (1965) Trade liberalization and revealed comparative advantage. Manchester School 32:99–123 Dinler S¸ D (2012) Trade unions in Turkey. Friedrich Ebert Stiftung. http://library.fes.de/pdf- files/ id-moe/09536-20121221.pdf. Accessed 18 Nov 2013 Eurofound (2013) The 5th European Working Conditions Survey. http://www.eurofound.europa. eu/surveys/ewcs/2010/. Accessed 25 Nov 2013 International Trade Union Confederation-ITUC Survey of Violation of Trade Union Rights. http:// survey.ituc-csi.org/Turkey.html?edition¼336&lang¼en#tabs-2. Accessed 7 Nov 2013 International Labor Organization (2010) Committee of Experts on the Application of Conventions and Recommendations. Individual Observation No. 87 Krishna P et al (2001) Trade liberalization and labor demand elasticities. J Int Econ 55:391–409 Kurban D (2007) A quest for equality: minorities in turkey, minority rights group international report. www.minorityrights.org/download.php?id=739. Accessed 19 Feb 2014. ISBN 1-904584-63-2 OECD Employment Outlook (2000–2012). http://www.oecd.org/els/employmentoutlook- previouseditions.htm. Accessed 19 Feb 2014 Taymaz E (1999) Trade liberalization and employment generation: the experience of Turkey in the 1980s The Central Bank of the Republic of Turkey (2002) The impact of globalization on the Turkish economy. The Central Bank of the Republic of Turkey, Ankara. http://www.tcmb.gov.tr/yeni/ evds/yayin/kitaplar/global.pdf. Accessed 7 November 2013. ISBN: 975-7589-72-1 Togan S (2012) The EU-Turkey customs union: a model for future Euro-Med integration. MEDPRO Technical Report No. 9 (March 2012) United Nations (2004) Human development report United States Department of State Bureau of Democracy, Human Rights and Labor (2010) Urhan B (2005) Tu¨rkiye’de Sendikal O¨ rgu¨tlenmede Yas¸anan Gu¨ven ve Dayanıs¸ma Sorunları. C¸ alıs¸ma ve Toplum, 2005/1 Verite´ (2012) Emerging markets research project. Terms of reference for in-country research, section B: final indicators World Economic Forum (2012) Wage Gap Report. http://www.non-discrimination.net/law/ national-legislation/country-reports-measures-combat-discrimination. Accessed 19 Nov 2013; http://www.ilo.org/wcmsp5/groups/public/—ed_norm/—normes/documents/publication/wcms_ 216695.pdf. Accessed 19 November 2013; http://www.economy.gov.tr/index.cfm?sayfa¼ tradeagreements&bolum¼fta®ion¼0. Accessed 25 Nov 2013; http://lnweb90.worldbank. org/oed/oeddoclib.nsf/DocUNIDViewForJavaSearch/310BE32B5444C84585256810005082AA. Accessed 18 Nov 2013; http://www.oecd-ilibrary.org/economics/oecd-economic-surveys-turkey- 2012/turkey-s-revealed-comparative-advantages-2001-10_eco_surveys-tur-2012-graph26-en. Accessed 19 Nov 2013; http://www.economist.com/node/21552216. Accessed 21 November 2013
Chapter 3 Can FDI Be a Panacea for Unemployment?: The Turkish Case Mehtap Hisarciklilar, Derya Gultekin-Karakas, and Ahmet Atil Asici Abstract Foreign Direct Investment (FDI) currently constitutes the main mecha- nism for economic globalisation. Despite the rising integration of the Turkish economy into the global economy, FDI performance of Turkey remained lower than many other developing countries until the early 2000s. This was followed by a period of a boom in which Turkey attracted record levels of FDI inflows in her history. Accompanying these inflows, the country also achieved high rates of growth. However, high unemployment rates continued to be a major problem. This chapter seeks to explain the role of FDI inflows in job creation in Turkey at a sectoral level for the period 2000–2008. We use panel data analysis and find a positive, but weak relationship between FDI inflows and employment. Merger and acquisitions, as the dominant mode of foreign entry in Turkey, and/or the domi- nance of the FDI inflows in the financial sector after 2004 might be the reasons for this weak employment effect. Moreover, the tendency for the shift of foreign investment from low-tech to medium-and high-tech industries in Turkish manufacturing could lead to the negligible effect on employment. 3.1 Introduction Since the mid-1980s, the primary mechanism for integration of national economies into the global economy has shifted from trade to Foreign Direct Investment (FDI) as evidenced by the faster growth of FDI than trade (Dicken 2011). The profitability crisis in advanced capitalist countries in the late 1960s and early 1970s has led to M. Hisarciklilar (*) Faculty of Business Education and Law, Business School, Staffordshire University, Brindley Building, Leek Road, ST4 2DF Stoke-on-Trent, UK e-mail: [email protected] D. Gultekin-Karakas • A.A. Asici Faculty of Management, Istanbul Technical University, Macka 34367, Istanbul, Turkey e-mail: [email protected]; [email protected] T. Dereli et al. (eds.), Labor and Employment Relations in a Globalized World, 43 Contributions to Economics, DOI 10.1007/978-3-319-04349-4_3, © Springer International Publishing Switzerland 2014
44 M. Hisarciklilar et al. the rising internationalization of productive capital. While Transnational Corpora- tions (TNCs) have tended to globally relocate production activities in search of lower costs and higher profits, this also created an opportunity for developing countries to achieve a higher level of industrialisation by attracting new financial resources (Ercan 2003). Therefore, as FDI offers a form of finance that does not cause indebtedness the competition among developing countries has intensified and a general tendency of liberalisation of FDI regimes has been observed worldwide. FDI is also argued to be desirable for higher job opportunities in host economies. Suffering from high and persistent rates of unemployment and also aiming to achieve a higher level of capitalist industrialisation, Turkey has redesigned her FDI policy in the early 2000s by further liberalising the terms and conditions for FDI inflows and creating a more favourable investment climate in the country. In retrospect, Turkey attracted only a very low level of FDI until the early 2000s. Following the severe financial and economic crisis in 2001, thanks to the economic reforms in the country and excessive global liquidity, there was a sharp increase in the FDI inflows. However, although Turkey experienced high rates of growth during the 2000s and this growth process was accompanied by large amounts of FDI inflows, the high rates of unemployment in the country persisted, if not increased. At this point, how these FDI inflows affected unemployment in Turkey remains a question to be explored. Employment effects of FDI needs to be discussed within the broader context of structural transformations in the economy under consideration. That is to say the expected goals from the designed FDI policies need to be the starting point in the discussion of the performance of foreign investments, as FDI policy is a component of overall development strategies. Government policies can prioritise particular outcomes of FDI at the expense of others as a wide spectrum of those outcomes (e.g. export promotion, import substitution, technological spillover, job stimula- tion) may not be achieved simultaneously. This issue is particularly relevant for this chapter since foreign investments can help technological upgrading while reducing employment in an economy. The current FDI policy in Turkey mainly aims a higher share from global FDI which is particularly directed to higher value-added sectors. Thus, solutions for wider social problems remain as secondary issues. On this basis, the examination of the employment impacts of past FDI inflows can inform us regarding the social and economic performance of foreign investments in Turkey. Furthermore, for a thor- ough analysis of the effects of FDI inflows, there is a need for a detailed sectoral investigation as the effects can vary from one sector to another depending on sector- specific characteristics. In this chapter, we aim to analyse the relationship between FDI inflows and employment in Turkey at the sectoral level for the period of 2000–2008. The analysis only covers the direct employment consequences in the host country. The study will show whether or not the surge in FDI flows into Turkey contributed to job creation. This chapter consists of the following sections: the first section will discuss the FDI inflows to Turkey with a historical perspective. Secondly, we will review the literature and present our research questions and hypotheses. The next
3 Can FDI Be a Panacea for Unemployment?: The Turkish Case 45 section will be devoted to the discussion of the methodology and data analysis. In the final section, we will present the results and draw some policy conclusions. 3.2 FDI Inflows to Turkey in Retrospect Before 1980, during the import substitution period, Turkey’s share in the world FDI remained less than 1 %. In the post-1980 period despite the rising integration into the global economy through trade and financial liberalisation, the FDI performance of the Turkish economy continued to be low. This low performance occurred even though Turkey has had a large and growing domestic market, an advantageous geographic position, low labour costs and a developed telecommunication network (Erc¸akar and Karago¨l 2011). Rather than FDI, capital inflows mainly took the form of portfolio investments, which were attracted via a policy of high interest ratecum- overvalued Turkish Lira. There were several reasons behind the low FDI perfor- mance in the post-1980 period. First of all, foreign-owned firms continued to be subject to some special authorisations and sectoral limitations. Also, Ok (2004), examining the driving factors of FDI in Turkey with a survey data, not surprisingly finds that political and macroeconomic instability in Turkey had been considered by foreign investors as the most important barrier to FDI. Furthermore, a weak and unpredictable judicial system, heavy taxation, corruption, and competition from the informal economy are noted as deterring foreign investment (ERF 2005, p. 77).1 The slow progress in privatisation in Turkey is also pointed out as a reason for the low foreign investment (DPT 2000; Onaner 2000). The progressive liberalisation of FDI regime2 in the 1980s and 1990s did not neutralise these disincentives (Erdilek 2003, p. 83). As Fig. 3.1 displays, FDI inflows to Turkey continued to be very low even during the 1990s when global FDI continued to rise up.3 In fact, the expected market-expansion effects from the customs union with the EU have not been realised.4 Moreover, the higher attractiveness of the transition economies, China, the East Asia and Latin America also made Turkey a less preferred destination for TNCs in the 1990s (Erc¸akar and Karago¨l 2011, p. 13). As a result, despite the rising openness to world trade since 1980 and the customs union with the EU in 1996, “Turkey’s integration with the world economy through FDI has lagged relative to other developing countries” (Erdilek 2003, p. 80). 1 See also (Erdilek, 2003; Yılmaz, 2007) for the reasons of the low FDI inflows in the 1980s and 1990s. 2 For the liberalisation of the FDI regime see Gu¨ven (2008) and Erc¸akar and Karago¨l (2011). 3 In 2000, the share of Turkey in global FDI was still 0.08 %. As well, the country’s share in FDI flows to developing countries was 0.41 % (Gu¨ven, 2008, p. 84). However, in the West Asia region in 2011, with FDI inflows amounting to $15.9 billion, Turkey became the second top FDI receiving country following Saudi Arabia (UNCTAD, 2012, p. 49). 4 For an evaluation of why the customs union did not positively affect FDI inflows as much as expected see Gu¨ven (2008, p. 91).
46 M. Hisarciklilar et al. Fig. 3.1 FDI inflows to FDI inflows, million US dollars Turkey, 1970–2011 5000 10000 15000 20000 0 1970 1980 1990 2000 2010 Year The figure shows the real FDI inflows in 2005 prices Data Sources: FDI: UNCTAD FDI Database; Deflation: World Bank WDI database In 2001, the GSM tender led to an upsurge in the FDI received by Turkey. However, the severe financial crisis at that year caused FDI inflows to return back to low levels again. Yet, between 2005 and 2007 Turkey recorded the highest volumes of FDI inflows in her history with a three consecutive year of growth. In spite of the fall in the incoming FDI after the peak in 2007, 2008 still saw one of the highest inflows to Turkey. By attracting $22.03 billion FDI in 2007, Turkey ranked among the top five developing countries and the 16 countries in the world (Turkish Treasury 2008, p. 2). Lying behind this change, the restructuring in the Turkish economy after the 2001 financial crisis, the economic stability with falling inflation and interest rates coupled with the global excess liquidity helped a lot to attract historic amounts of FDI flows to Turkey. Adding to that the introduction of the new FDI Act in 2003 (Law No. 4875) has highly contributed to the surge in FDI inflows. With this legislative change, investment climate has been made more favourable for the entries of foreign firms. The Act guarantees non-discriminatory treatment, with equal rights for foreign and national investors. “According to the Law, a company can be 100 % foreign-owned in almost all sectors of the economy” (ERF 2005, p. 78) without any performance requirements.5 Last but not least, the start of the membership talks with the EU in 2004 also contributed to the surge in FDI inflows (Yılmaz 2007) and the decline in global FDI flows after the financial and economic crisis of 2008–2009 was also observed for Turkey with a sharp fall during the period. Backed by the changes in the FDI promotion policy towards a more sector- specific approach together with two big cross-border merger and acquisition 5 The FDI Act removed the screening and pre-approval procedures for FDI projects, redesigned the company registration process so that it was equal for domestic and foreign firms, facilitated the hiring of foreign employees, included FDI firms in the definition of “domestic tenderer” in public procurement, granted foreign investors full convertibility in their transfers of capital and earnings and authorised foreign persons and companies to acquire real estate in Turkey (ERF, 2005; Erdilek, 2003, p. 93).
3 Can FDI Be a Panacea for Unemployment?: The Turkish Case 47 Fig. 3.2 Unemployment in10 12 14 Turkey, 1985–2011 Unemployment rate 8 6 1985 1990 1995 2000 2005 2010 Year Data Source: TURKSTAT and World Bank WDI database (M&A) sales,6 the inflows in 2011 caught up with the $10.3 billion pre-crisis average between 2005 and 2007 (UNCTAD 2012). However, it should also be noted that although Turkey attracted record levels of FDI in the 2000s, relative to the worldwide inflows, they remained still very low, below the country’s potential (Sayek 2007; UNCTAD 2012). Accompanying the FDI inflows, the Turkish economy achieved an average annual growth rate of 6.8 % between 2002 and 2007. Yet despite the high growth rates and the surge in FDI inflows, as can be seen from Fig. 3.2, the high rates of unemployment in the country has persisted. At this point, there is a need for a discussion of the reasons of the persistence of high unemployment in Turkey. Regarding to labour market rigidity and high unit labour costs, for example, in their study on transition economies, Leibrecht and Scharler (2009) find that employment-creation capacity of FDI was not affected by the level of employment protection legislation but relative unit labour costs. In the Turkish case, especially after the 2001 economic crisis, high growth rates have been accompanied by the divergence between real wage and productivity increases as real wages have lagged behind productivity (Yeldan 2012). Economic growth in the 2000s was basically achieved due to the rise in labour productivity besides the increased use of imported raw materials and semi-finished goods. Therefore, the Turkish government and businessmen associations mainly point out labour market rigidity rather than a high wage level as the reason for the unemployment. On this basis, the unattractiveness of the country for foreign capital is explained as follows: Turkey could not create an internationally competitive environment in terms of costs of production. High costs of energy, raw materials, as well as high taxes and costs of employment other than wages (i.e. social security contributions by employers) have made Turkey uncompetitive (see Gu¨ven 2008, p. 81). Therefore, 6 The Spanish BBVA purchased 24.89 % of Turkiye Garanti Bankasi by $5.9 billion while Vallares of the UK invested $2.1 billion to acquire General Enerji (see UNCTAD, 2012).
48 M. Hisarciklilar et al. despite the new Labour Law that increased the control over the working class and the rising productivity of labour (Ercan 2003), further measures to deepen the flexibilisation of labour markets have been proposed by the State in the draft of the National Employment Strategy (2012–2023). Labour unions criticise the strat- egy as it will not serve to the alleviation of unemployment. Rather, they argue that it will serve to reducing job security, increasing labour productivity and subordinating working conditions further to the needs of capital for higher competitiveness. Labour unions stress that high unemployment has been the outcome of the preferred economic policies of the state in the 2000s. Firstly, the decline in agricultural employment accompanying the neo-liberal restructuring in this sector has contrib- uted to the unemployment problem. Moreover, massive privatizations reduced the capacity of the state as a direct employer. Private sector’s growth strategy, on the other hand, has been based on producing “with the least employment and cheapest costs of labour” via underground, insecure and flexible kinds of employment. Nowadays, the capitalist class demand state policies which are conducive further to this end. As a result, Turkey continues to compete internationally on the basis of cheap labour (see TU¨ RK-I˙S¸ 2012; Petrol-˙Is¸ 2012). Given the conflicting views regarding unemployment in Turkey, the relationship between FDI inflows and unemployment needs to be addressed within the broader context of capital accumulation. Only such a broader perspective can allow us to answer whether foreign investment can be a panacea for unemployment in Turkey. Figure 3.3 displays the modes of entry of foreign capital in Turkey between 2000 and 2011. It shows that in terms of the number of establishments, the dominant form of foreign investment in Turkey was greenfield investment. The sum of company establishment and branch offices, as an indicator of greenfield investment, consti- tuted around 80 % of the total companies with foreign capital. Greenfield invest- ment is followed by the form of participation in the existing firms through merger & acquisitions (M&As) (Turkish Treasury 2008, p. 18).7 However, as Yılmaz (2007, pp. 10–11) points out, when the average sizes of capital invested are considered, M&As become the dominant form. Here, it must be noted that privatisation also attracted this kind of foreign investment in large scale in the considered period. It was observed that between 2003 and 2006, almost 95 % of the new foreign investment in Turkey were in small-scale firms. That is the high number of newly established firms and branches did not translate into high FDI inflows in monetary terms. For the 2007–2011 period, the dominance of small-scale foreign investment continued in Turkey: on average, the number of foreign firms with capital more than $500,000 had only a share of 12.6 % in total number of foreign capital firms (see Republic of Turkey Ministry of Economy 2012, p. 22). As a matter of fact, Turkey has not been successful in attracting greenfield investment compared to Czech Republic, Hungary and Poland that became the three most important host countries among the transition economies in the 1990s and 2000s (Yılmaz 2007, p. 10). The dominance of privatisation and M&As is 7 There were around 33,700 foreign capital firms in Turkey as of November 2012.
3 Can FDI Be a Panacea for Unemployment?: The Turkish Case 49 Fig. 3.3 Number ofNumber of Establishments companies with foreign1000 2000 3000 4000 capital by year according to mode of establishment, 2000–2011 0 2000 2002 2004 2006 2008 2010 2012 Year Company Establishment Merger & Acqusitions Branch Office Total Data Sources: Undersecretariat of Turkey and Republic of Turkey Ministry of Economy generally attributed to low level of education, unskilled labour force, low R&D expenditures and, high taxes8 (see Yılmaz 2007, p. 12). However, Ernst (2005, p. 13) notes that “in developing countries with a more advanced industrial sector, the acquisition of a local firm can represent. . . a realistic alternative to greenfield investment”. We agree with Ernst’s view that M&As become a part of a strategy to modernise and rationalise existing productive structures as evidenced in Turkish banking in the 2000s. In the discussion of the employment outcomes, sectoral distribution of FDI also needs to be taken into consideration. Manufacturing is expected to create more jobs than services. As stated below, the distribution of FDI in the 2000s indicates the dominance of the services and this fact can be a reason for the poor job performance of FDI in Turkey. Looking back, in the post-1980 period, foreign capital mostly preferred manufacturing and services. Agriculture and mining have been histori- cally the less attractive sectors for foreign investment in Turkey (Gu¨ven 2008). During the late 1990s and early 2000s manufacturing became the top FDI receiving sector, with the share of around 52 % of total FDI inflows (Sayek 2007, p. 108). However, as can be seen from Fig. 3.4, since the early 2000s, services have attracted the highest FDI in Turkey in parallel with the world trends: Financial services attracted the most service-related FDI,9 followed by transportation and communications. Trade also attracted investors in Turkey, as demonstrated by the acquisition of the supermarket chain Migros by BC Partners (United Kingdom) (UNCTAD 2009, p. 57). In brief, taken together the financial services, transporta- tion and communications, trade as well as hotels and restaurants, FDI in services far exceeded foreign investments in Turkish manufacturing in the 2000s. 8 Similar to the reduction in corporate taxes in 2006, decreases in indirect tax rates are demanded to lower down essential input costs (see Erc¸akar and Karago¨l, 2011, p. 12). 9 Such as the partial or full acquisitions of Akbank, Garanti Bank, Oyakbank and Finansbank.
50 M. Hisarciklilar et al. Fig. 3.4 FDI shares of industries, 2000–2011 During the period between 2000 and 2011, manufacturing was the second sector that received the highest FDI following financial services. Within manufacturing, as Fig. 3.5 shows, food products, chemical products and pharmaceuticals and, metal products were the top three FDI receiving sectors. In 2011, the manufacturing sector accounted for about 22 % of total FDI inflows. As Fig. 3.4 displays, TNCs also increasingly entered the energy sector as one of the most growth-promising sectors in Turkey in the process of market liberalisation and privatizations. Similarly, Turkey received FDI inflows to the mining industry amounting to $351 million in 2007, following the Mining Law of 2004 that eased privatizations and foreign ownership (UNCTAD 2009, p. 56). FDI in construction, on the other hand, has been lower than foreign real estate purchases in Turkey. Until the regulatory changes in 2003, foreigners were not allowed to invest in real estate. As the new FDI Act allows foreigners to acquire property in Turkey, foreign investments in real estate increased sharply (Sayek 2007, p. 110). 3.3 Literature Review According to UNCTAD (1994), the impact of international production on employ- ment depends on several factors: the first factor is the initial type of investment (or mode of entry)—greenfield or acquisition. Greenfield investment may create new employment accompanying the creation of a new plant while a merger or takeover may imply that employment remains the same or even declines since only
3 Can FDI Be a Panacea for Unemployment?: The Turkish Case 51 Fig. 3.5 FDI shares of sectors in manufacturing, 2000–2011 the firm’s ownership changed to the foreign. Secondly, the sector or industry of investment matters: for example, more labour-intensive ones create more employ- ment. Thirdly, employment creation depends on whether international production substitutes for domestic production (whether, for a given level of output, foreign firms drive local ones out of the market). Fourthly, time matters. In the early stages of FDI, employment contraction may occur in domestic firms facing foreign competition. However, employment may improve at a later date as domestic firms adapt to the new competition and foreign firms contribute to economic growth. Baldwin (1995) stresses the importance of the extent to which FDI sub- stitutes for investment at home and the extent to which FDI stimulates increases of exports of intermediate as well as capital goods. Hence FDI has positive/negative as well as direct/indirect employment effects in the receiving country, probably occurring at the same time and for any national economy. It increases employment in a newly established firm. As well, with backward and forward linkages, foreign investment might contribute to the creation of new jobs in other (sub-)sectors in the economy. Besides, in the process of economic growth, new investments bring about rising demand for labour through the multiplier effect. On the other hand, FDI may negatively affect employment in case of a downsizing/closure of the acquired firm. Furthermore, foreign investment may displace domestic firms via rising competition and importation (UNCTAD 1994, p. 167). UNCTAD (1994, p. 173) also distinguishes three kinds of strategies followed by transnational corporations, having different employment effects: a stand-alone strategy, simple integration strategy and deep integration strategy. Firstly, if foreign companies follow a stand-alone strategy, local market-serving may bring about a
52 M. Hisarciklilar et al. higher firm-wide level of employment as well as indirect employment through establishing local linkages with suppliers. This case is also expected to replicate the parent firm’s occupational structure in a foreign affiliate with the exception of the highest value-added jobs (e.g. R&D). However, in case of a simple-integration strategy, foreign affiliate employment is export-oriented and may create some direct employment, with minimal indirect job-creation since foreign affiliates rely on transformation of imported inputs. Also, as the integration strategy is based on low labour costs, low skilled- low value added jobs may be predominant in the foreign affiliate. Lastly, if foreign firm pursues a deep integration strategy “value- adding activities are no longer replicated across different locations, but rationalised and consolidated so as to reap efficiency and scale advantages”. This may reduce employment in a firm if it is in a transition from a former stand-alone strategy. A certain labour market specialisation in given affiliates is expected within the system of integrated production. Foreign affiliates employed an estimated 69 million workers in 2011. UNCTAD (2012, p. xv) notes that the largest 100 TNCs’ foreign sales and employment grew faster than those in their home economy as a reflection of the overall upward trend in international production. However, after 1985, UNCTAD (1994, p. 174) noted, the growth of direct employment by TNCs remained behind the increase in the world stock of FDI. The reasons for this fact have been pointed out as follows: the transition to integrated international production in order to increase efficiency; the application of advanced manufacturing technologies; and the rise in inter-firm outsourcing and subcontracting which reduces direct employment but increases indirect employment. The evidence also shows a relatively higher contribution of FDI to local econ- omies in developing countries. “The higher ratio for employment compared to value added in developing countries reflects the fact that the labour-intensity of production there is higher than in developed countries” (UNCTAD 2012, p. 32). Indeed, the employment impact varies from one country to another depending on the predominant types of investment. Local labour costs (Hatzius 1997) and the consequent predominant industries in which TNCs operate in host countries deter- mine the contribution to employment (UNCTAD 2012, p. 33). In fact, employment implications of FDI inflows is a very complicated issue. That is because the impacts depend on many factors such as the size and degree of internationalization of an economy, “macroeconomic factors specific to individual countries and industries, the dynamic effects due to reaction of firms in home and host countries to the changes in competition and industrial specialisation endan- gered by the activities of TNCs” (UNCTAD 1994, p. 168). The effects of FDI inflows on job creation in the host economies require case analyses in order to conclude whether there is a net generation or displacement of employment. More- over, the main issue is not the impact of FDI inflows on the level of employment, but the impacts on “its industrial composition, its skill mix, its quality and its productivity as international production affects industry structures, the composition of exports and the specialisation of an economy” (UNCTAD 1994, p. 168). The issue of the effects of FDI on industrial composition is particularly relevant for the
3 Can FDI Be a Panacea for Unemployment?: The Turkish Case 53 Turkish case as it will be discussed below, foreign investment has been seen as a channel to achieve a higher level of diversification in Turkish manufacturing. In the literature on country cases, employment effects of FDI in the investment receiving country has been contentious. The debates signal that those effects can change from one country to another depending on country-specific features, sectors and the form of investment. Mickiewicz et al. (2000) find a positive but highly divergent effect of FDI on employment in Czech Republic, Hungary, Slovakia and Estonia during the 1993–1996 economic transition period. Same amount of FDI may also have different effects across sectors within the same country. For exam- ple, Golejewska (2002) finds that, in Poland during the 1993–2000 period, FDI inflows into industries like glass and textiles increased employment, whereas the effect was negative in apparel and footwear sectors. In a recent study by Karlsson et al. (2009) on Chinese manufacturing industry, FDI is found to be positively affecting the employment growth in foreign-owned firms largely due to their firm characteristics and high survival rates. Similar effects were recorded in privately- owned domestic firms as well, possibly due to spillovers. The positive impact of FDI is also evident in the Irish economy. She attracted large investments by export- oriented-foreign firms in the 1990s and 63 % of manufacturing employment was provided by these TNCs (Barry and Bradley 1997). Another country where positive employment effect of FDI has been recorded is Hungary. The country attracted large FDI inflows in the same period. Fazekas and Ozsvald (2004) find that more than 80 % of net job creation of the corporate sector in Hungary between 1993 and 2000 can be attributed to foreign companies. However, the authors also point out that between 2000 and 2002, employment in foreign firms decreased with the shift of FDI from low-value added sectors to medium-tech sectors. A positive employment effect has also been identified in the Malaysian case (Rajasekeran 2001). In this descriptive work, it is claimed that TNCs have been attracted to crucial sectors such as electronics since the 1970s by no-union policy, tax heavens and some other more incentives. However, even though FDI inflows mainly from Japan, Taiwan, South Korea and Singapore have helped to create jobs in Malaysia, this process has been accompanied by lower wages and less job security. Yet, Pei and Van der Esch (2004) assert that in general, FDI inflows to developing countries have had positive effects on economic growth, job creation, and living standards of workers. But the authors also recognise that there is a diversion of opinion in the academic field as some negatively affected country cases have been identified. As a result, their work remains to be assertive but not empirically well-supported. On the other hand, Axarloglou and Pournarakis (2007) analyse the effects of FDI inflows on local employment in manufacturing across a sample of states in the United States for the period of 1974–1994. They find that the effects change from one industry to another. While FDI inflows have positive employment effects for a subgroup of industries such as printing and publishing and transportation equipment and instruments, negative effects have been found for another subgroup of indus- tries such as leather and stone, clay and glass. Onaran (2008) also finds the employment effect of FDI inflows to manufacturing industry in Central and Eastern
54 M. Hisarciklilar et al. European countries as insignificant, if not negative. As well, Ernst (2005) finds that in Argentina and Brazil, the surge in FDI inflows in the 1990s negatively affected employment mainly because of the form of investment. M&As mainly in the service and manufacturing industries were often followed by modernisation and rationalisation measures leading to labour shedding. On the contrary, the author stresses, Mexico experienced strong employment growth as FDI took the form of greenfield investment in the maquiladora industry even though this impact turned to be negative in the 2000s as will be discussed below. Despite the relevance of the issue for Turkey, there has been a limited number of researches hitherto. Moreover, the findings of these few studies are contradictory. Among these studies, Co¨mert (2000) descriptively analyses the effect of FDI and portfolio inflows on employment in Turkey in the 1983–1992 period and depending on the past trends, he concludes that FDI and portfolio flows are expected to increase employment in Turkey. On the other hand, Karago¨z (2007) finds no causality between FDI inflows and employment in Turkey for the period of 1970–2005. There are some shortcomings in his analysis, however. First of all the study covers a long period of time in which there were major structural breaks in the amounts of FDI inflows. Furthermore, he uses aggregated data disregarding any sectoral consideration. Same criticism can be made against Ekinci (2011) that argues no relationship between FDI and employment in Turkey for the period of 1980–2010. The author points out the entries of foreign capital mainly through M&As rather than greenfield investment as the reason for this result. As well, using VAR technique, Aktar and O¨ zturk (2009) find that FDI did not create new jobs in the 2001–2007 period on the basis of aggregate quarterly data. Peker and Go¨c¸er (2010), utilising quarterly data and a bounds testing approach, for the period of 2000–2009 find also no long-run relationship between FDI and unemployment in Turkey. However, the short-term analysis shows that while FDI increases unem- ployment in the current period, it reduces after two periods. That is because foreign investment that comes via privatisation can reduce employment during restructuring. Yet foreign capital can employ new labour force in the subsequent periods depending on the economic conjuncture. The descriptive study by Koldas and Senses (2005), on the other hand, compares the performance of FDI firms on some aggregates including employment, wages, labour productivity and share of wages in value added in comparison with domestic firms during 1992–2001 period. They find that foreign firms fare slightly better in terms of employment creation than domestic firms. However, they also note the disappointing performance of FDI in comparison with the expectations it raised in the first place. As well, Vergil and Ayas¸ (2009) examine the relationship between employment and FDI inflows by using panel data analysis which includes four main sectors (manufacturing, financial services, wholesale and retailing, and mining) for the period of 1992–2006. They conclude that FDI inflows negatively affected employ- ment in Turkey as the majority of FDI inflows took the form of M&As rather than greenfield investment. However, this study also suffers from the same drawbacks as
3 Can FDI Be a Panacea for Unemployment?: The Turkish Case 55 Karago¨z (2007). Saray (2011) also finds that FDI does not contribute to the solution of unemployment problem in Turkey. On the basis of the time series analysis of the period 1970–2009, he claims that the reason for this dismal outcome is the fact that FDI tends to enter the sub-sectors of service industry (e.g. finance, communication– transportation). The employment effect of FDI can also differ between high and low skilled labour. FDI has been found to be positively affecting the employment of high skilled labour while negatively affecting low skilled one. Bu¨lbu¨l and Emirmahmutog˘lu (2010) analyse the employment effect of FDI in the case of Turkish banking in the 2000s. Comparing five foreign- and five Turkish-owned banks, the authors claim that the attraction of foreign banks into the sector did not create positive employment effects. Even though foreign investment has created new jobs in the sector, the annual increase in employment by these banks has been less than by the majority-Turkish owned banks. Moreover, due to higher technology used, foreign banks have employed more under the category of higher education (university, faculty or upper) than the Turkish-capital banks. As well, with the exclusion of trade unions, foreign banks can increase the wage disparities between lower and higher skilled employees and this creates an unfair playing field for the Turkish-capital banks. As can be seen, it is not possible to draw any concrete conclusion from the existing literature on the relationship between FDI and employment in Turkey. The main reason for the inconsistent findings can be attributed to different time periods and sectors that are covered by these works as well as their failure to control for factors other than FDI. For a solid analysis of the effects of FDI inflows on Turkey’s employment level there is a need for a consid- eration of the structural breaks in the history of the Turkish economy. For example, the period before 2000 should be analysed separately from the post-2000 period as FDI inflows remained uncomparably low before 2000 (see Fig. 3.1). Further clarification can be achieved by extending the analysis into a larger number of sectors than those covered by the few studies mentioned above. In this way, if foreign investments have led to varying employment outcomes among the (sub-) sectors the analysis can pinpoint those sectoral differentiations. Besides, a model which incorporates the causal relationship between employment and FDI inflows controlling for other important determinants of employment would enhance the reliability of the results. 3.4 Data and Methodology In this chapter, we analyse sectoral employment effects of FDI inflows to the Turkish economy between 2000 and 2008. The analysis covers ten sectors (ISIC Rev.3: A–K), including manufacturing sector subdivided into ten sub-sectors (ISIC Rev.3 15 + 16, 17 + 18, 20 + 21 + 22, 23, 24, 25, 27 + 28, 29, 34, 35), totalling to
56 M. Hisarciklilar et al. 19 sectors.10,11 Therefore, this study provides the most comprehensive analysis among the existing works on the relationship between FDI and employment in Turkey in terms of the numbers of sectors covered. The non-availability of sectoral data forced us to restrict the research to the post- 2000 period. However this time period is consistent with the fact that FDI inflows to Turkey in the post-2000 period have considerably changed both qualitatively and quantitatively. As mentioned above, there has been a surge in the FDI flows to Turkey in the post-2000 period that are incomparably higher than the previous periods (see Fig. 3.1). Therefore, the analysis will be able to clarify the effects on job creation accompanying the surge in FDI inflows by focusing on the post-2000 period. With the large number of sectors included in the analysis, it will be possible to identify the relationship between FDI and employment more clearly. We utilise two estimation approaches that complement each other. In the first stage, panel Vector Autoregression (VAR) modelling is applied to examine the dynamics of the employment—FDI relationship in all the 19 sectors listed above. Panel VAR models follow a similar logic as those of standard VAR models. However, panel VARS are “much more powerful tools to address interesting policy questions related e.g. to the transmission of shocks across borders” (Canova and Ciccarelli 2013, pp. 2–3). Because of the additional cross sectional dimension, these models provide an opportunity to examine cross sectional interdependencies as well as time variations. Panel VARs are being increasingly applied in various areas in economics because of their convenience in formulating the model at hand.12 The dynamic structure of the VAR modelling, however, causes the Within Groups Estimator to produce inconsistent estimates because of the correlation between the lagged values of the dependent variable and the unobserved cross sectional effects.13 To handle this problem, we followed Love and Ziccihino (2006) and applied forward mean-differencing, also referred as the Helbert procedure, by subtracting the mean of all future observations from each data point. Referring to Arellano and Bover (1995), Boubtane et al. (2012) explain that this transformation does not induce autocorrelation given that the errors are not correlated in the original specification. Heteroscedasticity is also not an issue since each observation is weighted to standardise the variance. This transformed model is then estimated 10 See Appendix Table 3.4 for a descriptive list of these sectors and sub-sectors. 11 Sector 30 (office machinery and computers) is excluded due to unavailability of data on employment. Similarly, sectors 32 (radio, TV, communication equipments) and 33 (medical, precision and optical instruments, watches and clocks) are excluded since there were no inflows to these sectors. 12 See Canova and Ciccarelli (2013) for a wide review and discussion of different applications of panel VAR models. 13 Similarly, statistical properties of the Generalised Least Squares (GLS) or Maximum Likelihood (ML) estimates for dynamic panel models strongly depend on the assumptions made for the initial value of the dependent variable as well as how the number of time periods and cross-sectional units approaches to infinity.
3 Can FDI Be a Panacea for Unemployment?: The Turkish Case 57 by system GMM using the lagged values of the explanatory variables as instru- ments.14,15 Following the estimation of the model, impulse-response functions and the variance decomposition are calculated by applying the Cholesky decomposition.16 Due to data limitations, the second set of estimations focus only on the manufacturing sub-sectors estimating panel data models that incorporate the causal relationship between employment and FDI using additional explanatory variables at sector level, namely gross fixed capital formation as an indicator for domestic investment, average wage payments,17 value added, and number of establish- ments.18 After estimating fixed and random effects models Hausman test for the choice between the two specifications is applied. The autocorrelation and heteroscedasticity problems are dealt with by applying Feasible Generalised Least Squares estimation allowing for the panel-specific AR terms. The FDI data are obtained from the OECD international direct investment database. For the panel VAR estimations, the total employment data are obtained from ILO’s LABOURSTA database. The variables that are used in the second set of estimations (other than the FDI inflows) are obtained from UNIDO Industrial Statistics (Indstat2) database. FDI inflows, measured in million US dollars, are deflated using the US GDP deflator obtained from World Bank, World Develop- ment Indicators (WDI) database. All the other monetary variables are obtained in current national currency (i.e. New Turkish Lira), which are then deflated using sectoral producers’ price index, obtained from the Turkish Statistical Institute. 14 GM Mestimation of dynamic panel data models was first introduced by Holtz-Eakin et al. (1988) and Arellano and Bond (1991), which is also referred as “difference GMM”. System GMM is an augmented version of this method, which was introduced by Arellano and Bover (1995) and later on developed by Blundell and Bond (1998). 15 The panel VAR models are estimated by a Stata program written by Inessa Love and is used in Love and Ziccihino (2006). Time dummies are also controlled for during the estimations. 16 The Cholesky decomposition of residual variance-covariance matrix assumes that the variable listed earlier in the VAR model affects the other endogenous variables both contemporaneously and with a lag while the variables listed later in the model affect the other endogenous variables with a lag only. In this respect, the first variable listed in the model could be said to be “more exogenous” than the other (Boubtane et al., 2012). This distinction is not as clear-cut in our model as both variables could be said to affect each other simultaneously. Impulse response functions and variance decompositions are calculated changing the ordering of both variables in the specifica- tion. Results and the implication of both specifications were almost identical. 17 Average wage payments are calculated by diving the total wage/salary payments within the sector by the number of employees in that sector. 18 Research and development expenditures, intra-industry trade and trade balance at industry level were also experimented, but are not included in the final specification.
58 M. Hisarciklilar et al. 3.5 Results 3.5.1 Panel VAR Estimations for All Sectors Mentioned above, this study employs panel VAR modelling to examine the inter- relations between total employment and FDI inflows for 19 sectors in 2000–2008. Table 3.1 presents the key summary statistics for the variables used in the estima- tions and Table 3.2 summarises the estimation results. Models are estimated for lags 1–5. The lag order for the final specification is chosen to be two after testing for the restrictions in lower lag orders and comparing the significance of the parameter estimates (Holtz-Eakin et al. 1988). Higher lag order reduces the number of observations dramatically, which is another reason of reporting the results for the two lag model. The impulse-response function graphs of the same model are presented in Fig. 3.6. The impulse-responses show the response of an endogenous variable in the model to a one standard deviation shock observed on the other variable. Results obtained from the impulse response functions and the variance decom- position suggest that the variables of the panel VAR model are mostly affected by their own past values rather than the other endogenous variables in the system. According to the variance decomposition results, approximately 93 % of the variation in the FDI inflow forecasts could be attributed to a shock in the variable itself while around 7 % could be explained by a shock in total employment. As for the employment, only around 1 % of the variation in its forecast could be attributed to shocks in FDI inflows, suggesting a very small effect of FDI on creating employment in the overall economy. A one standard deviation shock in sectoral employment increases both the employment numbers and the FDI inflows, its effect on FDI being higher in the second period after the occurrence of the shock than the first period. This implies that FDI respond to shocks in employment over a 2-year period. Similarly, both the FDI inflows and the employment responds positively to shocks in FDI inflows. In line with the variance decomposition results, the response of FDI inflows to a shock in itself is higher than to a shock in employment. Similarly, the response of employment to a shock in employment itself is higher than to a shock in FDI, however the response to a shock in FDI starts fading away during a longer time period. The first response of employment to a shock in FDI is positive, and this seems to get stronger during the second period, implying that the effects of FDI on employment could be observed more lucidly over a longer time period. 3.5.2 Panel Estimations for Manufacturing Sub-sectors Estimations in this section are based on panel data models that explain the sectoral employment with sectoral FDI inflows, gross fixed capital formation (GFCF),
3 Can FDI Be a Panacea for Unemployment?: The Turkish Case 59 Table 3.1 Main summary statistics for the panel VAR variables Number of Standard 25th 50th 75th Variable observations Mean deviation percentile percentile percentile Employment (thousand 157 430.949 413.664 134 268 630 people) 397.254 1,265.333 6.199 37 193 FDI inflows (2005 million 157 US dollars) Table 3.2 Panel VAR estimation results for all industries Employment FDI inflows Employment (t À 1) 1.1121*** (0.1044) 4.8965** (2.1871) FDI Inflows (t À 1) 0.0015** (0.0007) 0.9250*** (0.2409) Employment (t À 2) À0.3010*** (0.1041) À2.5854 (1.6112) FDI Inflows (t À 2) À0.0009 (0.0011) À0.4967*** (0.1878) Note: Standard errors are reported in parentheses **Significant at 5 % level; ***significant at 1 % level Fig. 3.6 Impulse-response functions for the panel VAR model. Note: The solid lines show the impulse-response functions and the dashed lines show the 5 % error bands. The standard errors for the impulse-response functions that are used to calculate the error bands are obtained by Monte Carlo simulations of 1,500 repetitions
60 M. Hisarciklilar et al. average wage payments, value added, and number of establishments for the manufacturing sub-sectors in 2000–2008 period.19 All the variables in the models are in natural logarithms.20 After estimating fixed and random effects models Hausman test for the choice between the two specifications is applied. The test results favoured fixed effects over random effects. Likelihood-ratio test for heteroscedasticity rejected the null hypothesis of homoscedastic error terms with a calculated chi-square test statistic of 52.27 (with 9 degrees of freedom). Wooldridge’s (2002) test for autocorrelation also rejected the null of “no serial correlation” with a calculated F-statistic (with 1 and 9 degrees of freedom) of 51.043. The model is then estimated by Feasible Generalised Least Squares (FGLS) accounting for both the heteroscedasticity and autocorrelation. Table 3.3 presents the estimation results for different specifications. The first and second columns, respectively, present the fixed effects and random effects results with heteroscedasticity robust standard errors. The third column (FGLS I) corrects for the heteroscedasticity, but not for autocorrelation. The models presented in the last two columns correct for both heteroscedasticity and autocorrelation, the FGLS II imposing a restriction that the autocorrelation parameter is the same for all manufacturing sub-sectors while FGLS III relaxing that restriction and allowing for sector-specific autocorrelation parameters.21 Although different specifications are presented for robustness checks, we will be focusing on the results presented in the last column since it incorporates all the possible issues that have arisen during the estimations. The results obtained in all specifications are consistent in terms of the effects of the explanatory variables and the statistical significance of the estimates. As expected, an increase in the average wage payment decreases the number of people employed in manufacturing sectors. Increases in value added created by the firms increases the number of people employed. Similarly an increase in the number of establishments that are operating within the industry creates more job opportunities for people; a 1 % increase in the number of establishments increasing employment by around 0.15 %. Increases in both gross fixed capital formation and FDI inflows have employment creating effects. The impact of a change in GFCF is estimated to be higher than the employment created by FDI inflows. Holding all the other factors 19 Summary statistics for variables used in the estimations are given in Appendix, Table 3.5. 20 There were, respectively, three and four observations with negative and zero FDI inflow values. The natural logarithm of the zero inflows is taken by replacing the zero value with a 0.001 and for the negative flows, the natural logarithm of the absolute value of FDI inflow is multiplied by À1. These observations are: 2004 textiles and wearing apparel (À6); 2003 refined petroleum and other treatments (À22); 2005 rubber and plastic products (À23); 2003 wood, publishing and printing (0); 2005 refined petroleum and other treatments (0); 2002 rubber and plastic products (0); 2004 other transport equipments (0). 21 The common autocorrelation parameter calculated for FGLS II is 0.619 while the sector-specific autocorrelation parameters range from 0.316 to 0.927 (Food products: 0.519; textiles: 0.684; wood, publishing, printing: 0.733; refined petroleum: 0.899; chemical products: 0.690; rubber and plastic products: 0.361; metal products: 0.718; mechanical products: 0.316; motor vehicles: 0.329; other transport equipments: 0.927).
3 Can FDI Be a Panacea for Unemployment?: The Turkish Case 61 Table 3.3 Panel estimation results for the manufacturing sub-sectors Fixed Random FGLS I FGLS II FGLS III effects effects Average real hourly wage À0.209* À0.331*** À0.440*** À0.625*** À0.612*** (0.114) (0.085) (0.084) (0.049) (0.054) Gross fixed capital form 0.049* 0.044 0.187*** 0.096*** 0.092*** (0.028) (0.034) (0.033) (0.019) (0.021) FDI inflows 0.018*** 0.017*** 0.013** 0.013*** 0.014*** (0.004) (0.004) (0.005) (0.003) (0.003) Value added 0.377*** 0.474*** 0.768*** 0.514*** 0.518*** (0.055) (0.055) (0.036) (0.035) (0.042) Number of establishments 0.195*** 0.206*** 0.152*** 0.140*** 0.148*** (0.030) (0.027) (0.025) (0.025) (0.021) 2.276** À4.227*** 2.815*** 2.687*** Constant 3.402*** (0.903) (0.893) (0.301) (0.461) (0.828) Number of observations 76 76 76 76 76 Likelihood-ratio 70.981 21.476 46.744 50.574 Wald chi-square (5 df) 447.333 1349.098 1843.421 766.884 Note: (1) All variables are in natural logarithms, (2) standard errors are reported in parentheses *Significant at 10 % level; **significant at 5 % level; ***significant at 1 % level constant, a 1 % increase in GFCF creates an increase of 0.09 % in number of employees while a 1 % increase in FDI inflows increases the number of employees by around 0.01 %, on average. Although statistically significant, this number, the FDI elasticity of employment, is very low economically. Utilising the means of the variables to calculate the average effects might provide a rough idea on the effects of FDI. Commenting on the averages of the sample, a 1 % increase in FDI corresponds to additional $1.5 million inflows which is expected to create addi- tional jobs for around 25 people. It is important to emphasise here that this effect is only at average values and thus will change depending on the type of the FDI or the sector specific characteristics. A 1 % increase in GFCF (which corresponds to $15.6 million at the average), on the other hand, is expected to create around 168 addi- tional jobs, which is also not very high. As discussed in detail in the previous sections, employment effects of FDI varies according the technology level of the production, sector-specific characteristics, the mode of entry of the FDI firms as well as their motivation to invest in the host location (whether market-seeking, resource-seeking or efficiency-seeking). Employment creation and destruction effects could both be observed during the same time period, the positive impact of one investment being eliminated by a negative one. The effects could also spread over time; a greenfield investment creating jobs at the initial stages of investment could cause employment losses by crowding out the local firms after gaining some experience in the market; or job losses observed just after an acquisition taking place might be recovered in the long run with increases in the production capacities of the acquired firms as well as the development of new industries via backward and forward linkages. The exact outcome depends on how these processes will play themselves out.
62 M. Hisarciklilar et al. The models that are estimated in this chapter incorporate sector-specific hetero- geneity. However they do not control for employment switches from one sector to another, neither for the firm specific characteristics. It should be noted that an increase or a decrease in employment in one sector might not necessarily imply a similar change in the economy-wide employment. While one sector faces job losses with the entries of foreign capital, foreign investment can create jobs in other sectors, that is the aggregate outcome can diverge from specific sectoral outcomes. The results presented in the study is obtained by panel data estimations hence the results only show the average impact of FDI at the sectoral level. 3.6 Conclusion Given that FDI is generally considered to be a panacea for unemployment, this chapter has examined the employment impact of FDI inflows in Turkey by using a panel data analysis on 19 sectors for the 2000–2008 period. First a panel VAR model is estimated using data on all 19 sectors and the impulse response functions are computed. In the second stage, panel data Feasible Generalised Least Square method is used to estimate a model of employment for the manufacturing sub-sectors. The results of the two approaches complement each other. In both approaches FDI is found to create new employment opportunities within the sector of investment, although the level of this change is found to be too low for FDI to be a panacea for unemployment in Turkey. The minimal effect of FDI inflows on employment leads us to consider an important issue in Turkey’s agenda. Nowadays, Turkey aims to fulfil a change in the industrial structure. Turkey specialised in labour-and resource-intensive sectors during the post-1980 export orientation period. After exploiting low real wages and export subsidies as the basis of the export orientation of the industry, Turkish capital needed enhanced mechanisation and higher-value added production if it was to achieve a higher level of capitalist development (Gu¨ltekin-Karakas¸ 2009). Therefore, a structural transformation has been increasingly required to increase the shares of medium- and high technology-based sectors in the manufacturing industry’s production and export. Indeed, the signs of this change have already been observed in Turkey since the late 1990s. While the share of the medium and high technology sectors in total export almost doubled between 1996 and 2006, the share of low technology sectors decreased. However, the share of high technology sectors is still very low at around 4 % (see Ercan et al. 2008). The key issue is that FDI is considered to be crucial in fulfilling the desired shift in Turkish manufacturing. Similar to other developing countries, Turkey also needs foreign capital in order to achieve and sustain a higher level of capital accumulation (Ercan 2003). This is the reason for the demands for a better investment climate by those fractions of capital that seek for a further integration into global accumulation
3 Can FDI Be a Panacea for Unemployment?: The Turkish Case 63 through collaborations with foreign capital.22 That is why Yılmaz (2007) stresses the need for a FDI strategy in Turkey that will have sectoral priorities. Beyond simply attracting more foreign investments to Turkey, Yılmaz argues, FDI is needed particularly in the prioritised sectors such as electronics and information and communication technologies besides automotive industry. According to Yılmaz, in the medium- and long-runs, Turkey’s FDI strategy should aim to attract technology-intensive greenfield investments. In the short-run, FDI inflows mainly via M&As can play a role in financing current account deficits. However, in longer terms, FDI inflows via high-tech greenfield investment can also improve export performance.23 Only this kind of foreign investment can contribute to technological development as well as job creation in Turkey, Yilmaz stresses. In order to sustain competitiveness, Turkey needs high-tech-based foreign investment as low wages cannot be a basis for competitiveness any more given the cheap labour in China and India (Yılmaz 2007). In brief, FDI is considered to be a panacea for both unem- ployment and economic growth by serving to technological upgrading in manufacturing. The trends in the distribution of foreign investment in manufacturing indicate that FDI inflows started to be in line with the desired transformation towards a higher share of medium and high technology sectors in Turkish industry. Figure 3.7 shows that there have been changes in the distribution of foreign investment within manufacturing among low-, medium- and high-tech sectors in the 2000s. Firstly, it is seen that the share of foreign investment in low-tech sectors has had a tendency to decline. Secondly, after 2001 the medium-tech sectors started to attract foreign capital in large amounts. And thirdly, even though there are fluctuations, the total share of medium- and high-tech sectors has a tendency to increase over time. The shift of foreign investment from low-tech to medium- and high-tech indus- tries in manufacturing might lead to a detrimental effect on employment. This finding is consistent with the argument that job impacts of FDI inflows differ between developed and developing countries (see Co¨mert 2000; UNCTAD 2012). It is claimed that while in developed countries greenfield investment has been preferred to an acquisition for positive employment effects, in developing countries labour-intensive technologies have been preferred as a solution for unemployment. As mentioned above, the job creation capacity of foreign investment depends on whether it is capital- or labour-intensive. Capital-intensive, high-tech based invest- ments are expected to help less to reduce unemployment than labour-intensive ones (Saray 2011). Under the pressure of intensified international competition, higher technologies are being adopted in order to reduce costs and to increase productivity, having adverse effects on employment (Demir 2009, pp. 33–34). Moreover, the 22 See for example the statement by O¨ zilhan (2003) as the Head of the Turkish Industry and Business Association. 23 When we look at the sectoral distribution of FDI flows to Turkey, it is seen that foreign capital mainly prefers the non-tradable sectors such as banking and finance, energy, telecommunications, and retailing. Therefore, instead of tackling foreign exchange scarcity in the long run, foreign investment can even potentially lead to net capital outflows via profit transfers.
64 M. Hisarciklilar et al. Fig. 3.7 Shares of FDI inflows to manufacturing by technology level (2000–2011). Note: (1) Low-tech industries: food products, textiles and wearing apparel, wood and publishing; medium-tech industries: mechanical products, metal products, refined petroleum, rubber and plastic; high-tech industries: chemical and pharmaceuticals, motor vehicles, other transport. (2) The shares in 2011 does not sum to 100 due a large negative value ($-368 million) for the “other transport equipments”. This is higher than the sum of FDI inflows to the other high-tech sectors observed in that year introduction of new technologies through TNCs is expected to increase the demand particularly for skilled labour (administrative and technical staff).24 This may lead to initially rising wage inequality between skilled and unskilled workers (industrial workers as proxy for), as claimed by Figini and Go¨rg (1999) for the Irish case. As the financial crisis has evolved to a recession worldwide, global FDI flows have declined with a recent rise since 2011. Similarly, after a drop in FDI inflows in 2009 to Turkey, there has been a recent surge in foreign investment in the country so that her share in global FDI inflows reached to 1.1 % in 2011 (Republic of Turkey Ministry of Economy 2012). The sectoral distribution of the inflows shows that finance, energy and manufacturing are the top three sectors that attracted FDI in 2011.25 However, for the projected structural shift in industrial production, FDI needs to be attracted more to the sectors in manufacturing which can help to achieve this transformation. The changes in the sectoral distribution of FDI are consistent 24 The low-cost based specialisation of the maquiladora industry in Mexico proved to be fragile in the 2000s as the industry and employment declined due to the increased competition by China and other Latin American countries. Thus, in order to remain internationally competitive, the industry moved away from simple assembly activities to manufacturing and knowledge-intensive design of products. This ‘high-road competitive strategy’ caused a higher demand for skilled workers (Ernst, 2005, p. 25). 25 See Erdilek (2009) for the demands of the Investment Advisory Council for Turkey (IAC), comprising top-level executives of major multinational corporations, international organisations and business associations, from the AK Party Government for an improvement in the business climate.
3 Can FDI Be a Panacea for Unemployment?: The Turkish Case 65 with the aim of the Turkish government for a shift from low-tech towards high- value added, high-tech manufacturing sectors. However, although it may accelerate growth, this shift could hardly be the cure for unemployment, at least in the short- and medium-terms. Foreign investment can lead to positive employment outcomes only in the long-run via production capacity increases in the acquired firms after their reorganisations are completed. Also, backward and forward linkages within the domestic economy can enhance overall job opportunities in the long-run. Foreign companies even in high-tech industries can lead to new job opportunities in subcontractor firms if those TNCs build long-term relationships with domestic suppliers. However, this long-term positive employment effects remain as some distant possibilities, leaving the existing unemployment problem to be handled in different ways. At this point a dilemma appears: on the one hand, the Turkish state seeks to fulfil the needed shift towards high-tech industries and on the other hand, there is the problem of the persistently high rates of unemployment. Considering that the priority of the state in Turkey is to fulfil the structural transformation in the economy, additional alternative policy measures are required to alleviate unem- ployment. The report by the Turkish Industry and Business Association (TUSIAD 2008) indicates that the composition of Turkish manufacturing needs to be transformed towards high-tech industries for a sustainable growth process. Even though such a change already started to happen, traditional industries continue to be important and hence it is also necessary to implement policies which will contribute to the progress of the traditional industries in order to alleviate unemployment and regional imbalances. The emphasis on high-tech industries by the TUSIAD, the representative association of large-scale, globally oriented capitalists, supports our claim that TNCs have come to forth with their roles in the long-term structural transformation of the national economy. That is why it can be argued that foreign investment has been welcomed mainly for reasons other than curing the unemploy- ment problem in Turkey. It is seen as integral to the desired change in industrial accumulation in the country. In order to expand capital accumulation, foreign capital is expected to bring new investment funds; to replace old technologies with newer ones; and, to open up new external markets for Turkey (see Erc¸akar and Karago¨l 2011, p. 22). Therefore, any future analysis of FDI in terms of its job performance needs to consider this crucial fact. Moreover, while the Turkish state needs to attract greenfield investment to medium- and high-tech industries to facilitate the industrial transformation, the low skill level of labour force is pointed out as a barrier. Aktar and O¨ ztu¨rk (2009) argue that Turkey should focus on increasing the qualifications of labour force to attract more and better FDI given that neither FDI nor economic growth did create new jobs in Turkey (see also Erc¸akar and Karago¨l 2011, p. 28). As a matter of fact, Turkey has not been successful in attracting greenfield investment in the 1990s and 2000s compared to some other most important host countries as indicated above. Besides the low R&D expenditures, the low skill level of labour force has been indicated among the reasons for the dominance of privatisation and M&As. Thus FDI inflows cannot be expected in large amounts to the high-tech sectors without an
66 M. Hisarciklilar et al. education reform that can increase the skill level of the labour force. The demands of business groups and organisations that seek rising integration into the global economy are also in line with this argument.26 According to the Strategic Industry Document (Republic of Turkey Ministry of Industry and Trade 2010) covering 2011–2014 period, the Turkish government aims to reduce the unemployment rate to 5 % while increasing employment to 50 % until 2023. Moreover, in the labour- and resource intensive, traditional industries, a shift to a higher value-added production and export is aimed. More importantly, the Document adds, for a sustainable increase in the share of medium- and high-tech industries in the production and export, there is a need for a skilled workforce that can adapt to the dissemination of more advanced technologies.27 However, we need to note that eliminating this limitation can help to the unemployment problem only to the extent that the prioritised higher value added industries employ new labour. Thus orien- tation of foreign capital to medium-and high-tech sectors even having the highest capacity for job creation can only be a partial/minimal solution for the high rates of unemployment in Turkey. That is because domestic or foreign capital employs labour force only to the extent that is required, leaving the reserve army of labour permanent in capitalism. Acknowledgements The authors would like to thank to Inessa Love and Christian Danne who have kindly shared the Stata code and help file that are used for the panel VAR estimations in this study. 26 See for example the demands of International Investors Association (YASED) which represents major transnational companies in Turkey in Yılmaz (2007); TUSIAD (2004). 27 Whatever the factors that reduce competitiveness, the need for a higher-skilled labour appears to be common for all sectors in the manufacturing industry in order to achieve a higher level of productivity. For example, in the electronic industry, even though the costs of labour have been lower than the rival countries, there has been a need for a qualified workforce and, firms in the sector try to fill the gap through on-the-job training.
3 Can FDI Be a Panacea for Unemployment?: The Turkish Case 67 Appendix See Tables 3.4 and 3.5. Table 3.4 ISIC Rev.3 codes of industries and sub-sectors included in the study Industry Sub-sectors A+B Agriculture and fishing Food products C Mining and quarrying Textiles and wearing apparel D Manufacturing Wood, publishing and printing 15 + 16 Refined petroleum and other treatments E 17 + 18 F 20 + 21 + 22 G 23 H I 24 Chemical products J K 25 Rubber and plastic products 27 + 28 Metal products 29 Mechanical products 34 Motor vehicles 35 Other transport equipments Electricity, gas and water Construction Trade and repairs Hotels and restaurants Transports, storage and communication Financial intermediation Real estate, renting and business activities Table 3.5 Main summary statistics for the variables used in manufacturing estimations Variable Number of Standard 25th 50th 75th observations Mean deviation percentile percentile percentile Number of employees 76 183.170 189.948 76.977 123.921 234.478 (1,000 people) FDI inflows (2005 76 148.782 270.24 10.846 35.165 159.357 million US dollars) Gross fixed capital 76 1,814.084 1,802.536 889.020 1,391.304 2621.472 formation (2003 million TL) Average wage payments 76 141.679 79.567 89.430 103.244 193.163 (2003 TL) Value added (2003 76 52.779 35.670 26.704 47.197 68.537 million TL) Number of 76 20,359.75 21,748.16 2,453 12,926.5 34,551 establishments
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Part II Social Policy
Chapter 4 New Approaches to Disability in Social Policy: The Case of the United States Thomas P. Golden, Ilene Zeitzer, and Susanne M. Bruye`re Abstract The United States, like many other countries, is still struggling with how best to coordinate policies and programs to support people with disabilities in achieving employment outcomes commensurate with their non-disabled peers. Significant disparities in employment rates persist, and are in part the result of past policies that insisted on considering disability and employment as two separate and marginally-related issues. Disability standards and definitions frequently oper- ate in contradiction to employment—the severity of the disability often negating the possibility of work. In addition, many programs were created in the past to deal with different populations, and rather than seamlessly intermeshing, often work at cross purposes, producing unintended consequences. The U.S. is at a crossroads with regard to this fragmented approach to policy development and implementation. This chapter provides a historical overview of the development of disability policy in the U.S. with a goal towards illuminating the policy disconnects today vis-a`-vis employment promotion for people with disabilities. 4.1 Introduction The United States, like many other countries, is still struggling with how best to coordinate policies and programs to support people with disabilities in achieving employment outcomes commensurate with their non-disabled peers. In 2011, the employment rate of working-age people with disabilities in the US was 33.4 %, compared to 75.6 % for working-age people without disabilities. The gap between the employment rates of working-age people with and without disabilities was 42.2 T.P. Golden (*) • S.M. Bruye`re Employment and Disability Institute, Cornell University, Ithaca, NY, USA e-mail: [email protected]; [email protected] I. Zeitzer Disability Policy Solutions, Rio de Janeiro, Brazil e-mail: [email protected] T. Dereli et al. (eds.), Labor and Employment Relations in a Globalized World, 73 Contributions to Economics, DOI 10.1007/978-3-319-04349-4_4, © Springer International Publishing Switzerland 2014
74 T.P. Golden et al. percentage points in the U.S. (Erickson et al. 2012). The problems that exist currently are not new—they are the result of often disparate policies in the past that insisted on considering disability and employment as two separate and marginally-related issues. Disability standards and definitions frequently operate in contradiction to employment—the severity of the disability often negating the possibility of work. Today, the U.S. is at a policy crossroads with regard to this fragmented approach to policy development and implementation. The U.S. population is aging rapidly, and the natural linkage between disability and aging is putting increased pressure on Social Security Administration’s Trust Funds which rely on a Pay as You Go (PAYG) funding mechanism to support the contributory program for workers, called Disability Insurance (DI). Adding to this pressure is the fact that the mandatory pension age is increasing to age 66 for those born after 1943 and age 67 for anyone born after 1960, and the likelihood of a worker developing some type of impairment or work-limitation prior to retirement is greater with increased age. The situation is exacerbated by the fact in the current national DI program, there is no possibility under the current definitions for partial or temporary disability benefits—either one is too disabled to work and thus receives a DI benefit, or one is expected to be able to work at substantial gainful levels and is not eligible for any disability benefit. The very nature of work in the U.S. has changed profoundly since the DI program’s beginnings in the mid-1950s (U.S. Government Accountability Office 2007). It is questionable whether the all or nothing approach was even applicable at the time of the DI program’s inception, when the nature of work was more labor intensive. But it is understandable that inability to meet the physical demands of the job equated then with the belief that the individual with the disabling condition did not have many other options except to claim a disability benefit. Today, most American workers are engaged in sedentary work, with little physical exertion required. However, many jobs that exist in the U.S. economy today require more sophisticated thinking, are more complex and demand greater technology skills, and thus may lead to more emotional stress. In fact, more than 25 % of current DI beneficiaries are receiving benefits for mental illness and related disorders. Nevertheless, advances in medicine, such as improved surgical tech- niques—for example, in coronary bypass surgery—as well as improvements in pharmacology, mean that Americans are living longer and with better health status than ever before. Therefore, the current U.S. health indicators challenge some basic precepts that underlie the basis of awarding Social Security disability benefits: (1) that they are totally disabling, preventing work of any significance; (2) that this resultant inability to work is of long duration and/or permanent in nature; and (3) that the disabling condition is static. In point of fact, none of these basic precepts, on which the whole premise of awarding disability benefits is based, have been proven to hold true for a significant number of individuals with disabil- ities. Indeed, many individuals with profound disabilities such as quadriplegia, blindness or deafness are active participants in the U.S. labor force and many of them have returned to the work force after acquiring such disabilities and after having received appropriate vocational rehabilitation and training. Moreover, for a
4 New Approaches to Disability in Social Policy: The Case of the United States 75 significant number of people with disabilities, such as those with certain cyclical or episodic conditions such as Multiple Sclerosis, depression, or bi-polar disorders, their level of functioning and its impact on their ability to work varies considerably from one episode to another, but is certainly not constant or predictable. The definition of disability, with its strong reliance on inability to work at a basic level, has created a policy challenge for SSA and others interested in promoting work by individuals with disabilities. The dilemma in the U.S. today is how to craft new employment, disability and social insurance policies and develop innovative programs and supports that provide greater opportunities for people with disabil- ities to utilize their remaining abilities, rather than to be forced to seek benefits. Unfortunately the all-or-nothing nature of the definition of disability under Social Security, coupled with the fact that many other programs were created in the past to “solve” or deal with different populations, often still mean that policies and pro- grams operate in “silos.” These policies and programs, rather than horizontally and seamlessly intermeshing, instead often work at cross-purposes and can produce unintended consequences when people with disabilities attempt to work, despite their disability. The next few sections will detail in greater depth a brief historical overview of the development of disability policy in the U.S. with a goal towards illuminating the policy disconnects today vis-a`-vis employment promotion for people with disabilities. 4.2 Early Historical Background The history of U.S. disability policy in some ways mirrors that of other countries, (i.e. it has many of its roots in efforts to reintegrate those wounded during military service, especially those injured in wars). However, the U.S. disability history diverts sharply from that of many other countries, most notably that of the Western European countries, in that the first U.S. social insurance disability benefit pro- grams were not based on the work injury model, but rather on the old-age pension model. In other words, people were either actively engaged in the labor force or they were withdrawn from it as a result of having reached retirement age. Hence, the more current practice whereby people attain pensionable age but nevertheless continue to work, either full or part-time, was a much rarer occurrence in the past when the nature of work was more physically demanding. As will be seen in an upcoming section, the designers of the U.S. Social Security disability program took the notion of “either/or” from the retirement model and applied it to the disability insurance program. That singular fact accounts for a great deal of the policy difficulties to this day. Many of the western European countries saw the creation of public disability programs as a natural and needed complement to those pro- grams for workers, rendered injured or ill because of work-related conditions, when the condition was not work-related. Thus these countries—for example, Germany, France, Belgium, Sweden, the Netherlands and several others—found it logical to
76 T.P. Golden et al. Fig. 4.1 Employment and disability policy 1908–1950 assume that similarly, a person might be partially or temporarily incapable of working full-time due to a disabling condition that was not work-related. Therefore, the first disability insurance programs in these countries did not insist that the condition be so disabling as to preclude any work. On the contrary, these programs encourage work to the degree possible and compensate for the loss of capacity or earnings up to a maximum ceiling. The result is a focus on remaining function that intends to maximize labor force participation and promotes social inclusion. Figure 4.1 outlines the major pieces of legislation and societal trends impacting the early development of disability policy. As will be illustrated in the following sections, the U.S. social insurance disability policies and programs grew subtly, gradually and often separately out of the back door of the U.S. old age pension policy. 4.2.1 Workers’ Compensation One of the earliest forms of social insurance in the U.S. was Workers’ Compensa- tion (WC). The basic idea behind worker injury coverage is that the insurance covers medical care and loss of income (compensation)—for past, current and future earnings in cases of permanent damage—for employees who are injured, killed or made ill from work-related factors. In exchange for this compensation, workers give up the right to sue their employer for the tort of negligence (no-fault).
4 New Approaches to Disability in Social Policy: The Case of the United States 77 WC programs were implemented in most countries in the last century after consid- erable struggle by labor unions to gain such coverage. Prior to their enactment, workers injured on the job were only able to seek redress through civil or torts law. Moreover, in some countries, the onus was on workers to prove employer negli- gence or malice—a difficult requirement that usually resulted in employers prevailing (Patterson et al. 2011). It is generally acknowledged that the first real widespread WC program was established in 1908 by the federal government, initially just for its civilian workers who were engaged in hazardous work, but in 1916 coverage was extended to all civilian employees (Blessing et al. 2011). The concept grew rapidly—by 1920, all but seven states and the District of Columbia had some form of workers’ compen- sation, and by 1949, all had such programs. Each state and the District of Columbia administer their own programs, usually through state labor departments, establishing a state formula for benefit payments and maximum limits (Patterson et al. 2011). 4.2.1.1 Importance of Workers’ Compensation from a Policy Perspective From a disability policy perspective, WC laws were historically important because it was the first time that U.S. workers were assured some type of a social and economic safety net if their ability to earn was lost or impaired as a result of an injury or illness. This notion of functional loss impacting on earning ability became a recurring theme throughout all U.S. disability program policy and will resurface frequently in this chapter. Moreover, the importance of these WC programs from an insurance perspective is that they fulfill several roles such as: (1) life insurance that provides income to a worker’s survivors in the event of his or her death; (2) health insurance that provides for both medical care including medical rehabilitation as well as vocational rehabilitation; and as (3) disability insurance that provides income replacement for the loss or diminished capacity to work. On the negative side, the common use of schedules that dictate a prescribed number of weeks or months of compensation based on a specific formula, (compensation for the loss of a finger, for example), negates the importance of considering an individual situation in which the impact on a person’s ability to continue to do a job is very much dictated by the type of work and which finger was lost. The classic example of the latter situation is the extreme difference on earnings that such a loss would likely have on a concert violinist versus a lawyer. The other frequent criticism about the use of schedules is that employers’ insurance companies often try to negotiate, and thus minimize the impact of the loss on the worker’s future ability to earn. For example, a worker, for whom the loss of an arm could have a lifetime impact on earning ability, may be forced to accept a payout that may not come close to matching the lifetime earnings loss instead of an annuity once the required period of payments is met. On the positive side from a policy perspective, insurance premiums are usually experience-based as well as
78 T.P. Golden et al. industry-based, so that employers who run a safe shop typically pay lower pre- miums than those who have had more claims for benefits in prior years. In undifferentiated systems where all employers pay the same amount irrespective of their own experience, there is a greater tendency on their part to be more indifferent to safety and health conditions, leading to a situation where the “good” employers are paying for the “bad” ones. By linking premium costs to their own shop’s experience, employers are usually financially induced to pay attention to safety and health issues. 4.2.1.2 The Specific Impact of Workers’ Compensation Programs on Disability Policy As indicated above, WC programs fulfill several social policy roles in that they provide insurance coverage and loss of earnings protection, as well as spurring occupational safety and health protections. In addition, WC programs encourage return to work after injury or work-related illness by linking directly to rehabilita- tion programs or retraining, if needed. Indeed, the very nature of the decisional possibilities of WC benefits, i.e., benefits can be awarded on a partial, total, temporary, or permanent basis, leaves the door open to return to work and thus contrasts sharply with the all or nothing approach of the Social Security disability benefit requirements. Finally, it should also be mentioned that unlike in many countries, the U.S. WC programs are not an integral part of the social insurance system. In countries where the WC programs are integrated, if a person is injured or develops an illness or condition that is work-related, then that program pays; if it is not work-related, then the person claims a benefit under the social insurance disability program—but it is an either/or situation. In the U.S., because these programs are not integrated, claimants who are permanently and totally disabled as a result of a WC claim, can then also receive disability benefits under Social Security Disability Insurance, if they also meet that program’s eligibility require- ments. In those cases, the claimant receives benefits from both programs although there is usually a small offset of one program against the other depending on the individual state WC program. 4.2.2 Programs Dealing with Disability in War Veterans: Veterans’ Benefits Several laws were enacted as a result of the U.S. involvement in World War I, with the intent of helping the returning military return to civilian life and work. Even before the end of the war, the National Defense Act of 1916 provided for soldiers on active military duty to receive educational and vocational training, with the goal of returning to civilian life better prepared for its occupational demands. In 1917, the
4 New Approaches to Disability in Social Policy: The Case of the United States 79 Smith Hughes Act (PL 64-347) created the Federal Board of Vocational Education to administer federal government matching funding of state vocational education programs. This act provided for dislocated industrial workers and for the physical restoration and vocational retraining of disabled veterans of World War I. The 1918 Soldier’s Rehabilitation Act (PL 65-178), also called the Smith Sears Act, expanded the role of the Federal Board of Vocational Education to offer vocational rehabil- itation programs exclusively to disabled veterans. In the case of the disabled veterans, just as with WC, the goal was to help people with disabilities maximize remaining function. The disabled veteran had to be vocationally handicapped in a gainful occupation to qualify for services. Job placement was the obvious goal, with soldiers given an alternative to being on welfare rolls after their war-related disability. Due to industrial and farm mechanization, many could not, with their disabilities, return to their former work (Kundu and Schiro-Geist 2007). Service members and veterans of military service in the U.S. are entitled to many benefits as a result of serving their country. The Department of Veterans Affairs (VA) is responsible for administering most of these programs. These benefits include health care; educational assistance; life insurance; burial benefits; special loan programs, and hiring preferences for certain jobs. With specific reference to disability, service members are entitled to disability benefits, vocational rehabili- tation and survivor and dependent benefits. There are two major programs that pay cash benefits to veterans. The first one pays cash benefits to veterans with service- connected disabilities and, if the veteran dies, they also pay benefits to eligible survivors, including spouses, children and dependent parents. Moreover, these benefits are payable irrespective of any other income or resources. The second program pays means-tested benefits to needy veterans who have non-service connected disabilities. Concerning compensation for service-connected disabilities, cash benefits are paid to veterans who are disabled by an injury or a disease that occurred or was made worse during their active military service. Typically, service members who receive less than an honorable discharge are not eligible for benefits. The cash benefits are paid in relation to the degree of disability which is based on the percentage of normal functioning that is lost, with the rate varying from 10 % up to total. Dependents allowances are paid to veterans who have at least a 30 % service-connected disability, with the amount of the benefit determined by the degree of disability as well as the number of dependents. With regard to non-service connected disability, benefits are paid to war veterans who have low income and assets and who are permanently and totally disabled as a result of a condition that is not related to their military service. These veterans must have served at least 90 days in either: The Mexican Border Period; World War I; World War II, the Korean Conflict; the Vietnam Era; or the Gulf War. Pension payments are reduced by countable income but some medical and other expenses are allowed as deductions from countable income. In addition, veterans who are aged 65 or older and who meet the period of service, income, and net worth eligibility requirements are entitled to a pension irrespective of their physical condition.
80 T.P. Golden et al. The post 9/11 environment has seen considerable development of new legisla- tion pertaining to veterans, increasing education and employment opportunities, and addressing the needs of specific targeted veterans populations—specifically the homeless and veterans with service-connected disabilities. The Post-9/11 GI-Bill (Title V, P.L. 110–252) was enacted to provide veterans with at least 90 days of service after September 10, 2001, or veterans discharged with a service-connected disability financial support for education and housing. The Veterans Educational Assistance Improvement Act of 2010 (P.L. 111–377) amended the Post-9/11 GI-Bill improving the programs implementation, administration, enhancing educa- tional benefits, and increasing housing allowances for veterans eligible for both the Vocational Rehabilitation and Employment (VR&E) Program and the Post-9/11 GI-Bill (Dortch 2011). Building on these important piece of legislation, the Vet- erans Opportunity to Work (VOW) to Hire Heroes Act of 2011 (P.L. 112–56), was enacted by Congress to support the transition of service members back into society and civilian life—citing the education and retaining needs of the nearly 900,000 unemployed veterans in the United States (Hiring Heroes Act 2011; Veterans Opportunity to Work 2011). The law expands education and training opportunities for veterans, and created incentives in the form of tax credits for employers who hire veterans with service-connected disabilities. This important piece of legislation also included the Veterans Retraining Assistance Program (VRAP which offers unemployed veterans up to 12 months of training assistance. As a result of the VRAP, 54,000 participants will receive services from October of 2012 through March of 2014. Both of these pieces of legislation recognize the importance of creating incentives to work, and providing resources to reinforce education and retraining for employment. In addition to these pieces of legislation and the VRAP, the Department of Veterans Affairs also implements several additional programs aimed at supporting veterans and their families in pursuing education and retraining. These additional education programs include the Reserve Educational Assistance Program, Survivors and Dependents Assistance Programs, the Veterans Educational Assistance Program, and the National Call to Service Program. 4.2.2.1 Importance of Veterans’ Benefits from a Policy Perspective From a policy perspective, it is interesting to note that the earliest acts, which preceded the U.S. Social Security Disability Insurance program by at least 35 years, already embraced the notion that people with serious disabilities, in this case resulting from war injuries, should be afforded the opportunity to continue to engage in meaningful remunerative work. Furthermore, the VA provides for a full range of medical as well as vocational rehabilitation, including provision of orthotic and prosthetic devices, wheelchairs, hearing aids and so forth. One exam- ple of the commitment to helping injured service members return to work is The Computer Electronics Accommodations Program (CAP) which is part of the U.S. Department of Defense. CAP provides assistive technology and accommoda- tion solutions, including modifying the work environment, for veterans, active duty
4 New Approaches to Disability in Social Policy: The Case of the United States 81 members of the military, and their dependents, including children with disabilities. CAP also provides assistive technology and accommodations support to 65 federal agencies of the U.S. government for federal workers who are hired with or develop a disability. In fiscal year 2011, CAP filled 12,640 accommodation requests, including 6,693 accommodations that were for wounded service members. Most recently, CAP has placed particular emphasis on services for wounded military by implementing programs such as in-service trainings, conferences for service mem- bers, and overseas programming that gives service members in other countries comparable amenities as in the United States. In summary, the policies towards disabled veterans and active duty military personnel are geared towards encouraging them to return to work, often to remain in the military itself. This philosophy sends several positive messages: (1) that the country appreciates the service these men and women have given and recognizes the seriousness of their sacrifice, so that if they want to return to work after injury, they are often entitled to a preference in hiring in the public sector or to help to return to the military; (2) that no one who wants to work despite a disability should be thought of as expendable; and (3) that what is important is not to focus on the loss but on maximizing the potential of the remaining ability. These messages should be the philosophy of the DI program but unfortunately, often are not. The very nature of the Social Security disability definition forces claimants towards focusing on their deficits instead of their strengths and sends the wrong message that disability equates with inability to work. 4.2.3 The History and Context of the State and Federal Vocational Rehabilitation Program and Workforce Investment System Vocational Rehabilitation (VR) in the early twentieth century was primarily focused on the physical restoration of individuals who had suffered some sort of physical trauma or impairment. As stated earlier, many of these early efforts were focused on returning war veterans. In 1920, the Fess-Smith Civilian Vocational Rehabilitation Act expanded the program, as the name suggests, to disabled civil- ians, creating the current U.S, state and federal partnership for VR. Interestingly enough, the VR program survived the Great Depression and the close to 30 % unemployment rate experienced in the U.S. The passage of the Social Security Act in 1935 brought with it permanent authority for the state and federal VR program and a 3.5 million dollar appropriation. The Randolph–Sheppard Act of 1936 established a federal program for employing blind vendors at stands in lobbies of federal office buildings, further expanding options for community integrated employment opportunities (Blessing et al. 2011; Bruye`re and Barrington 2012). The 1940s saw an ever-increasing focus on the physical rehabilitation of the U.S. population, as well as increased national focus on the employment of people
82 T.P. Golden et al. Fig. 4.2 Employment and disability policy 1954–1978 with disabilities, as evidenced by PL-176 creating the National Employ the Handicapped Week. Additional federal laws expanded funding and federal resources available for the construction of hospitals, public health centers and health facilities focused on the rehabilitation of people with disabilities—further reinforcing the state and federal VR partnership by developing locally available VR resources. Expansion of local and state VR resources continued through the 1950s under Mary Switzer’s tenure as the Director of the U.S. Office of Vocational Rehabilitation. Figure 4.2 demonstrates the growth and expansion of the VR program and other critical supports from 1954 to 1978. People with physical impairments were the primary focus of efforts throughout the 1950s. In 1954, the Vocational Rehabilitation Act Amendments authorized federal grants to expand programs available to people with physical disabilities. The 1960s brought a balance to the state and federal VR program, with increased emphasis on intellectual and cognitive disabilities and other mental impairments, while the deinstitutionalization movement sought to highlight the issues and chal- lenges faced by institutionalized populations in the U.S. The next decade saw a tremendous growth in the construction of rehabilitation centers and VR programs that currently comprise the foundation of the state and federal partnership. The Rehabilitation Act of 1973 changed the name of the legislation from the Vocational Rehabilitation Act to the Rehabilitation Act. It established a priority to serve
4 New Approaches to Disability in Social Policy: The Case of the United States 83 persons with severe disabilities, and affirmative action programs were established under certain titles and sections of the Act. With each amendment to the original Act came an increased focus on shoring up the administration of the state and federal system, and the Individual Written Rehabilitation Program (IWRP) was established by the Act to ensure the enhanced involvement of the consumer in developing a rehabilitation plan of action. The independent living and empower- ment movement of the 1970s and 1980s focused subsequent amendments to the Act on the creation of independent living centers, enhanced emphasis on peer counsel- ing, and enhanced support for rehabilitation engineering, with appropriations and service definitions for special projects and demonstrations in supported employ- ment. The most recent amendments to the Act (1992 and 1998) detailed the intent of Congress to ensure consumer choice in career opportunities, with competitive employment as the preferred outcome (Patterson et al. 2011). In 1998, the U.S. Congress passed the Workforce Investment Act (PL 105-220) as an attempt to integrate various federally-administered employment and job training programs, including The Rehabilitation Act Amendments of 1998, into statewide partnerships for a workforce development system in order to consolidate, coordinate, and improve employment training, literacy, and vocational rehabilita- tion programs in the U.S. The Workforce Investment Act basically required states to develop employment programs and establish One Stop Centers, in collaboration with the state Department of Labor agencies (U.S. Department of Labor 2007). To understand the importance of these two distinct systems and the attempt to consolidate employment training programs in the U.S., the compositions of each of the systems and their purpose must be understood. 4.2.3.1 Importance of the Vocational Rehabilitation Program and Workforce Investment System from a Policy Perspective The State and Federal VR partnership is a federally-administered block/formula grant program. It is federally-administered by the Rehabilitation Services Admin- istration in the U.S. Department of Education to individual state VR agencies. Individual state agencies in turn maintain a statewide network of vendors and contractors for delivery of services and supports that may be needed by consumers served through this system. The VR program exclusively serves individuals with significant disabilities who meet stringent eligibility criteria. Services and supports authorized under the Rehabilitation Act are provided by a highly skilled cadre of credentialed personnel whose development is monitored and tracked through each state’s Comprehensive System of Personnel Development. This facet of the VR program is unique when contrasted to other federally-administered employment preparation programs reinforcing the need for a highly skilled and specialized workforce to provide employment-related skills and supports to people with dis- abilities. The state and federal VR program serves approximately one million individuals with disabilities a year, placing close to a quarter of a million consumers into competitive employment. The VR program has grown exponentially from its
84 T.P. Golden et al. 3.5 million dollar appropriation in 1935 to total expenditures of over 2.8 billion dollars in 2009 (Bruye`re et al. 2010b). Still, many have argued that the outcomes achieved by this system have not adequately met the VR needs of individuals with disabilities in the U.S. The impact of this system will be discussed in greater detail in the next section. The current Workforce Investment System is a combination of adult education, literacy, vocational and job training, and other job re-training programs targeted toward the general public. While the Workforce Investment Act consolidates this array of programs, some of which serve targeted populations, it is the establishment of the local One Stop Centers in each state that are charged with operationalizing the Act and its intent. While some states had One Stop Centers prior to the passage of the Act, the Act mandated the formation of locally-based one-stop service delivery systems to provide many employment and training services funded by the federal government. The purpose of the One-Stop Center approach was to encourage one-stop service delivery and reduce the previous fragmentation prob- lems which occurred in the employment and training realm—serving every job seeker through a central location that provided access to multiple services, pro- grams and supports. The One-Stop system is based on four principles: (1) Universal Access—making core work force development services available to all population groups; (2) Customer Choice—allowing customers to select services based on their needs and promotes competition among centers; (3) Service Integration—work force development services provided by local, state and federal programs are all consolidated into One-Stop Centers; and (4) Accountability—Centers are evaluated on the basis of measurable outcomes with future funding linked to the results of services provided to customers (Imel 1999). As indicated, the One Stop Centers are intended to serve all types of clients. Nevertheless, the Centers also have Disability Coordinators to assist their customers with disabilities. In addition, the Department of Labor has created other services to provide guidance or answer questions. For example, the Workforce Tools of the Trade (http://www.workforcetools.org/) is information for service providers that discusses how to adjust general customer service standards to meet the needs of customers with disabilities, and basic etiquette for interacting with customers with disabilities. In addition, it addresses compliance with laws such as the ADA and Section 508 of the Rehabilitation Act that mandates that all electronic and information technology, including, computers, software and electronic office equipment provided by the federal government be accessible to employees and members of the public with disabilities (DisabilityInfo. gov 2007). From a policy perspective both systems have struggled with how best to operationalize the Act. The VR program is a mandatory partner in the workforce system, and is required to contribute significant resources to support the One Stop and workforce development infrastructure. While VR’s involvement in the work- force investment system is critically important, it does not appear that appropria- tions are adequately sustaining the move to integrate systems—as evidenced by the fact that many state VR agencies maintain separate local offices from One Stop Centers and simply have office-share arrangements. Another challenge experienced
4 New Approaches to Disability in Social Policy: The Case of the United States 85 was the state VR programs’ concern that One Stop Centers would attempt to work with individuals with significant disabilities without adequate preparation and expertise, eroding the well-established vocational rehabilitation field of expertise. This perceived threat became an important point for articulation agreements established in states to provide clarity regarding who provides what types of services and supports within the One Stop infrastructure. This was further reinforced by a bold move by the Social Security Administration and the U.S. Department of Labor’s Employment and Training Administration to pilot a new initiative that began in 2002 to assist individuals with disabilities who want to go to work in accessing and maneuvering the One Stop System. The Disability Program Navigator (DPN) was a new position formed jointly by SSA and DOL through the national network of One Stop Career Centers. Navigators linked people with disabilities who visited One-Stop Centers with employers, state VR and other providers, and other employment supports needed to prepare for, attach to, and advance in work. In addition, Navigators also provided critical information on SSA’s work incentives and return to work initiatives, including the Ticket to Work Program. The DPN pilot ended in 2011, although some One Stop Centers continue to fund the position with other revenues. Building on the success of the DPN initiative, the Office of Disability Employ- ment Policy (ODEP) in the U.S. Department of Labor has launched the Disability Employment Initiative (DEI). The purpose of this program is to provide better education, training and employment opportunities and outcomes for youth and adults with disabilities who are unemployed, underemployed and/or receiving Social Security disability benefits. Through partnerships with state vocational rehabilitation agencies, mental health and developmental disability agencies, Med- icaid Infrastructure Grant-supported activities, independent living centers, business leadership networks, and other community-based and nonprofit organizations, DEI seeks to help people with disabilities reach their highest employment potential. Following creation of the DEI in 2010, the Department of Labor originally distrib- uted approximately $21,276,575 to 9 states for education, training, and employment opportunities.1 Since its inception, the Department of Labor has awarded more than 61 million dollars across 24 states. Several strategies are used under state DEI programs including: integrated resource teams; blended and braided funding or leveraged resources; customized employment; self-employment; guideposts for success; asset development strate- gies; and partnerships and collaboration. All DEI projects are designed to provide key services for youth and adult population to encourage employment. In addition, the DEI strives to improve the workforce investment system’s capacity by creating employment networks for participants of the Social Security Administration’s Ticket to Work Program. The movement toward a unified, universally accessible workforce development system was a bold and important step toward integrating employment and disability 1 http://www.dol.gov/odep/topics/DEI.htm.
86 T.P. Golden et al. policy. The next section outlines specific impact both systems have had on employ- ment outcomes for people with disabilities. 4.2.3.2 The Specific Impact of the Vocational Rehabilitation Program and Workforce Investment System on Disability Policy Since the inception of the state and federal VR program over 18.2 million individ- uals with disabilities have been served (CSAVR 2012). The Longitudinal Survey of Vocational Rehabilitation Service Participants (LSVRSP) provides substantial evi- dence that the VR program is effective in putting people with disabilities to work (Hayward and Schmidt-Davis 2002). The “Fourth Final Report: Results of the VR Program” documented that 77.9 % of individuals receiving VR services achieved a competitive employment outcome with 100 % working at exit, 83.8 % working 1 year after exit, 80 % working 2 years after exit, and 78.3 % working 3 years following exit. An annual SSA report highlights expenditures by the Agency to the state VR programs reimbursing them for services and supports provided that result in successful employment for SSA disability beneficiaries. In FY 2004, SSA projected a 470.3 million dollar savings to the trust fund by the VR program, demonstrating that every dollar spent on VR results in a six dollar savings to the government. While these savings seem considerable, Stapleton and Erickson (2005) documented that there are disparate employment outcomes achieved by certain populations within the VR system. For example, SSDI and SSI beneficiaries attain lower employment and earnings outcomes than other VR clients. The study by Stapleton and Erickson found that SSDI and SSI beneficiaries were more likely to work part-time as compared to other VR clients and that their mean weekly hours worked were 26.5 for beneficiaries, as compared to 35.8 for other VR clients. Mean hourly income showed a $2.56 difference between beneficiaries and other VR clients and beneficiaries were less likely to have jobs with employer-sponsored healthcare. This disparity speaks to the potential barrier of the SSA disability standard and the unintended consequence of public policies that do not support a common work agenda. A study conducted by Morris and Farah (2001) reviewed state WIA plans to establish a baseline for evaluating state implementation efforts to include individ- uals with disabilities. Generally, the study found that individual state plans varied considerably in the policy goals, program design, interagency collaboration and accountability of performance. While the majority of plans did include individuals with disabilities in the state plan development process, these plans did not provide adequate detail regarding the nature and scope of their involvement. A study conducted by Storen et al. (2002) documented that One Stop Centers rely heavily on their disability partners to offer services and supports for individuals with disabilities seeking employment and training. Nearly 75 % of respondents agreed that VR or other community rehabilitation programs will handle the majority of people with disabilities who enter the workforce development system. That same
4 New Approaches to Disability in Social Policy: The Case of the United States 87 study highlighted that over one half of respondents were “very satisfied” with their relationship with the state VR agency, although 30 % of respondents felt that One Stop Centers were not adequately marketing and conducting outreach to the disability community. There appears to be growing agreement regarding the positive impact of inte- grating these two systems and points to potential policy and procedural directives that could further reinforce partnership between these systems. This might include efforts to further integrate the two systems from a shared-space perspective— potentially reducing costs associated with maintaining separate office space; further reinforcement of the specific role that VR exclusively plays in the One Stop myriad of services; additional training and support for One Stop Operators to increase efficacy of working with people with disabilities and ensuring physical and pro- grammatic access; increased outreach and marketing to individuals with disabil- ities; and, deeper integration and mutual support for the advisory councils and committees that oversee their respective work. 4.2.4 The Federal Social Insurance System As indicated, it is instructive to examine the history concerning the creation of the U.S. Social Security Disability programs because the issue of how to define disability is crucial to the debate and policy dilemmas to the present day. The issue was contentious even 65 years ago. Some like Arthur Altmeyer, who, over his long and distinguished career was either Chairman of the Social Security Board or Commissioner of Social Security from 1937 until 1953 and the man President Franklin D. Roosevelt called “Mr. Social Security” was advocating for disability coverage “before the ink was dry on the Social Security Act in 1935” (DeWitt 1997). Altmeyer, as Chairman of the Social Security Board and head of the U.S. delegation to the First meeting of the Inter-American Committee on Social Security delivered a speech in Santiago, Chile in 1942 in which he discussed his vision for a disability program that would provide for partial and temporary disability benefits, as well as for total benefits, but it never happened (Inter- American Committee on Social Security 1942). In fact, the 1938 Advisory Council on Social Security considered the creation of a disability insurance program and unanimously agreed that “provision of benefits to an insured person who becomes permanently and totally disabled and to his dependents is socially desirable.” But the Council stopped short of recommending that such a program be established, with several members citing concerns about costs, administrative burdens and the difficulty of determining whether an applicant was indeed disabled (U.S. Social Security Administration 1988). The concern of opponents of a disability program, and most especially of one which would pay partial benefits was “malingering” i.e. how to tell if someone was truly disabled and if there were a partial disability benefit, how to measure the degree of loss. Hence, the debate went on for many years, with the 1948 Advisory
88 T.P. Golden et al. Council again recommending that Congress institute a disability insurance pro- gram. The 1948 Council attempted to deal with the concerns raised by the 1938 Council by setting tight eligibility criteria and adopting a stringent definition of disability that not only required a recent and substantial work history, but even more importantly, demanded that the condition must be “medically demonstrable by objective tests which prevent the worker from performing any substantial gainful activity and which is likely to be of long-continued and indefinite duration” (U.S. Social Security Administration 1988, p. 10) Despite these efforts to limit the scope of the program and potential problems with administering it, it was not until 1954 that Congress finally enacted the “disability freeze” which, in essence, was not a disability program yet, but which simply protected the retirement benefits of workers who, due to severe impairments, were unable to work. Once again, the language regarding eligibility for the freeze protection retained the strict standard of eligibility for disability using the same requirements as provided in the 1948 Council’s report. Interestingly, the ‘House Committee on Ways and Means in its legislation creating the freeze, also expressed great confi- dence in the value of VR for people with disabilities and sought to ensure that freeze applicants were promptly referred to State VR agencies.’ In order to facilitate prompt referral of freeze applicants for these services, the legislation required that eligibility determinations be made, not directly by SSA, but by State agencies on SSA’s behalf. Perhaps even more astonishing given the policy dilemma today is that the: House Committee saw no conflict between the narrowly drawn definition of disability and its intention that those who met this definition be offered VR services. . . Congress thus believed that some people whose medical condition would never improve could neverthe- less return to gainful employment if they received timely and appropriate VR services (U.S. Social Security Administration 1988, p12). In any case, the first true disability program—i.e. one that actually paid benefits— occurred when on August 1, 1956 President Eisenhower signed into law a bill that originated from the House Ways and Means Committee for “the payment of retirement benefits at age 50 to those workers who are forced into premature retirement because of disability.” Again, the bill provided for determination of disability to be made by State agencies and that applicants for cash benefits should be promptly referred for VR services (U.S. Social Security Administration 1988, p. 13). In the ensuing years, several eligibility requirements changed, most notably dropping of the requirement to be age 50, but the purpose and structure of the program has remained the same—i.e., that through mandatory contributions to the program, a worker earns protection for himself/herself and dependents against loss of earnings from a totally disabling condition. Furthermore, the definition of disability has not substantially changed since 1956. This is: The inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or has lasted or can be expected to last for a continuous period of not less than 12 months.
4 New Approaches to Disability in Social Policy: The Case of the United States 89 4.2.4.1 Importance of the Federal Social Insurance System from a Policy Perspective As commented above, the House Committee saw no conflict with their requirement that someone be so disabled that they could not work yet retained the notion that those same people could benefit from early referral to VR. The determination of disability is still carried out by the States but not by VR agencies. Instead, State agencies usually known as Disability Determination Services (DDSs) administer the federal disability programs on behalf of the federal government and operate under the federal regulations and make disability determinations based on guide- lines and standards provided by SSA (2010). They determine eligibility for disabil- ity benefits and whom to refer to State VR agencies for services. From a policy perspective, the federal state partnership should be a good thing and clearly Congress thought it would provide claimants with the benefits and services they needed in their community. However, in actual practice, the partnership often falls short of Congress’ early goals. It is important to note that since its inception, the federal disability program at least paid lip service to the notion that even people with severe disabilities might still be able to work, but as will be seen in the following section, the way it chose to define disability as well as to administer the program, often precludes that from actually happening. 4.2.4.2 The Specific Impact of the Social Insurance System on Disability Policy The policy that would and should encourage work to the degree possible and desirable by people with disabilities is essentially flawed by two major factors: (1) the decision to award disability benefits is made prior to and irrespective of any consideration of rehabilitation potential; and (2) State VR agencies decide which services, if any, will be provided to beneficiaries who are referred. “Using broad screening criteria developed by SSA and more refined criteria formulated in consultation with the VR agency in its State, the DDS decides whom to refer for services . . .. The State VR agency decides whether to offer services based on its own guidelines and then it contacts the applicant directly” (U.S. Social Security Administration 1988, p. 16). In short, the DDS may refer someone for VR services but that person already knows he or she is going to receive benefits and is under no obligation to cooperate in agreeing to take VR. Perhaps more significant is that although the DDS may refer the person, the State VR agency in the same State may decide, based on its own screening in/screening out criteria, not to provide such services to the client. Hence the person with the disability may earnestly want to work or return to work but is caught in this conflict, or may face the prospect of waiting several years for services to be provided because of extensive numbers of people awaiting services. Some states and even state DDSs may not refer or may routinely decline to provide services to older clients but “older” is often age 45. The
90 T.P. Golden et al. VR system and the way it functions are described in much greater detail in Sect. 4.2.3. However, from the perspective of the policy issues vis-a`-vis disability determination, it must be acknowledged that the current system often goes against recognized best practices in disability determination and intervention that dictate referral first and as early as possible to vocational rehabilitation before a decision is made about awarding permanent disability benefits for total inability to work. 4.3 Current Trends and Evolution in the U.S. Disability Movement While the focus of disability rights advocates of the 1950s and 1960s was on the advancement of civil rights, desegregation and deinstitutionalization, in the 1970s and 1980s attention turned to advancing the theories of normalization, protection and advocacy, independent living, and empowerment for people with disabilities. As represented in Figs. 4.3 and 4.4, the past few decades have represented a critical shift in policy, moving the U.S. from a medical model of rehabilitation to a functional supports model or social construct of disability, recognizing that the experience of disability is as much related to environment as it is intrinsically- related to the individual. The growing independent living movement, which ele- vated the voices of individuals with disabilities in the design and implementation of public policy, was a great impetus for this change. “Nothing about us without us” became the definitive statement of the 1970s and 1980s, and the significant push toward removal of architectural and transportation barriers in the 1970s was followed by the expansion of accessible telecommunication technologies in the early 1980s. This movement toward universal design and accessible communities and technologies drove plans for the removal of disability discrimination from air carriers, housing and the expansion of access to assistive technology even prior to the passage of the Americans with Disabilities Act in 1990 (Blessing et al. 2011). From 2000 to 2010, disability policy in the United States was heavily focused on continuing to align the disability policy framework with a social construct of disability. Legislation passed during this time period focused on the continued elimination of discrimination in areas such as voting rights, use of genetic infor- mation, and communications and video access; ensuring equitable treatment for targeted populations such as individuals with mental illness and individuals with paralysis; changing the terminology mental retardation to intellectual disability; and, supporting returning veterans, In 2008 when Congress enacted the ADA Amendments Act, a greater number of individuals became eligible for protection under the ADA. In fact, the amendments were designed to create broader coverage so that people, previously ineligible for ADA protection, would be covered by the law. By easing the ADA substantially limiting language, it is now easier to prove an ADA disability. Specifically, the ADA substantial limitation requirement no longer necessitates that a condition entirely prevent or severely limit the performance of a
4 New Approaches to Disability in Social Policy: The Case of the United States 91 Fig. 4.3 Employment and disability policy 1980–1996 major life activity. Rather, the term must be construed broadly to ensure all people with disabling conditions are able to gain ADA coverage (Patterson et al. 2011). This statutory expansion has moved the country even further in the direction of a functional supports model. With a growing population of people with ADA defined disabilities, including a significant portion of aging Americans, employers and society in general, must adapt to accommodate the needs of those with disabilities. Protection and advocacy over this two decade period was greatly expanded, beginning with a Client Assistance Program authorizing and appropriating dollars to provide representation and advocacy support for clients of the VR system. This was followed in 1975 with the Developmental Disability Bill of Rights in 1975, Civil Rights of Institutionalized Persons Act in 1980, and the Mental Illness Bill of Rights Act in 1985, all of which provided for protection and advocacy services. Many believe that this movement toward a new policy paradigm was advanced considerably in 1987 when Justin Dart, then Commissioner of the Rehabilitation Services Administration, testified to Congress that “an inflexible federal system, like the society it represents, still contains significant portions of individuals who have not yet overcome obsolete, paternalistic attitudes toward disability.” One year later the Congressional Task Force on the Rights and Empowerment of Americans with Disabilities was created to build support for the passage of the Americans with Disabilities Act (ADA).
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