Can Canada Pension Plan Disability Benefit program have better return-to-work incentives for full labor market integration of beneficiaries, reducing the cost of the program?

This paper presents a brief summary on Canada Pension Plan Disability Benefit (CPPD), the single largest public long-term disability insurance program in Canada. The CPPD provides income security to those people who have suffered prolonged and severe disability that makes a person incapable of pursing any substantially gainful occupation. The paper discusses the issues that CPPD faces today which includes the number of growing beneficiaries and the increasing cost of disability benefits. Each year between 1997-2007 payments rose to 2.2% per year and the number of recipients grew by 1.4% per year (HRSDC 2011a). One of the major issues faced by CPPD is the welfare dependency on disability benefits where people with health conditions leave labor market permanently and never return to work despite their willingness and ability to work. This creates labor shortage for the Canadian economy and consequently increases the cost of disability benefits. The purpose of this paper is to look into this problem specifically and analyze the following research question “Can Canada Pension Plan Disability Benefit program have better return-to-work incentives for full labor market integration of beneficiaries, reducing the cost of the program?” The paper focuses on return to work incentives offered by CPPD and makes a comparative analysis of what other OECD countries are doing to integrate people with health conditions into the labor market in order to reduce the cost of their disability benefits. The paper highlights the findings for all OECD countries where deep economic downturns tend to hit disabled people more than the general working age population and hence increases the beneficiary caseload. There are number of reforms introduced by OECD countries to effectively integrate people with health conditions into the labor market. These reforms include countries being more focused on remaining work capacity, making job search activity a requirement for people on disability benefits, offering partial benefits instead of permanent benefits while encouraging people with health conditions to continue applying for employment, moving towards single age benefits, engaging employers and medical professionals, evaluating labor market programs, giving right services at the right time. All these reforms have had a positive impact in reducing the number of beneficiaries and thus reducing the cost of disability benefits, integrating disabled people into the labor force in an effective manner. Canada, like many other OECD countries, shares similar problems including low rates of employment and high poverty risk for people with disability. The report concludes by presenting policy recommendations for Canada in order to improve the effectiveness of its policies for individuals suffering from disability. Some of the policy recommendations include better coordination between federal and provincial governments, evaluation and monitoring of the labor market programs, one stop-shop model, easy access to employment support programs, providing right services at the right time and enhancing employers’ role in managing sickness absences for workers