New Estimates of the Cost of Disability in Ireland Using the Standard of Living Approach

Abstract

Addressing the extra economic costs of disability seems a logical step towards alleviating elements of social exclusion for people with disabilities. This paper estimates the economic cost of disability in Ireland in terms of the additional spending needs that arise due to disability. It defines and estimates models of the private costs borne by families with individuals who have a disability in Ireland when compared to the wider population, both in general and by severity of illness. Our modelling framework is based on the standard of living approach to estimating the cost of disability. We extend on previous research by applying an ordered logit modelling approach to Living in Ireland survey data 1995-2001 to quantify the extra costs of living associated with disability in Ireland. We also derive estimates of the cost of disability for ‘pensioner’ and ‘non-pensioner’ households, as well as over time. Our findings suggest that the economic cost of disability in Ireland is large, varies by severity of disability, and across household types. Overall our findings have important implications for measures of poverty in Ireland.

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New Estimates of the Cost of Disability in Ireland Using the Standard
of Living Approach

John Cullinana, Brenda Gannon b and Seán Lyons c

Abstract
Addressing the extra economic costs of disability seems a logical step towards
alleviating elements of social exclusion for people with disabilities. This paper
estimates the economic cost of disability in Ireland in terms of the additional spending
needs that arise due to disability. It defines and estimates models of the private costs
borne by families with individuals who have a disability in Ireland when compared to
the wider population, both in general and by severity of illness. Our modelling
framework is based on the standard of living approach to estimating the cost of
disability. We extend on previous research by applying an ordered logit modelling
approach to Living in Ireland survey data 1995-2001 to quantify the extra costs of
living associated with disability in Ireland. We also derive estimates of the cost of
disability for ‘pensioner’ and ‘non-pensioner’ households, as well as over time. Our
findings suggest that the economic cost of disability in Ireland is large, varies by
severity of disability, and across household types. Overall our findings have
important implications for measures of poverty in Ireland.


1. Introduction
In considering the extent and impact of disability it is important to understand the
association between disability and poverty. Interventions to promote the wellbeing
and social inclusion of people with disabilities include policies to ensure adequate
income for people living with disabilities or those caring for a person with a
disability. Despite this the proportion of disabled or long-term ill in Ireland who are
in households at risk of poverty is twice that of households with no disability or long-
term illness (Gannon and Nolan, 2007). Similarly, these households are twice as
likely to be deprived of basic items such as clothes, food or heat. In this context

a Department of Economics, National University of Ireland, Galway, Ireland. Corresponding author. Email:
j.cullinan2@nuigalway.ie
b Irish Centre for Social Gerontology/Department of Economics, National University of Ireland, Galway, Ireland.
c Economic and Social Research Institute, Dublin, Ireland.

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addressing the extra economic costs of disability seems a logical step towards
alleviating elements of social exclusion for people with disabilities.

Providing a definition of disability appropriate for use in empirical analysis has
proved problematic, and many studies have acknowledged the varying ways of
describing disability. Historically the medical model of disability was viewed
appropriate but in recent years a social model is widely accepted. Ireland is one of the
few countries to adopt the social theory of disability, where disability is viewed as an
outcome of social attitudes and environment, and the Disability Act 2005 was passed
into law with a view to establishing a civil rights approach for people with disabilities.
The European Commission (2000, 2006) has acknowledged that social exclusion is a
multidimensional phenomenon that requires knowledge of several indicators of
quality of life. The challenge then to policymakers is to address the structural barriers
that are highlighted from evaluation of these indicators. Characteristics of social
exclusion include low income, poverty, education, employment and social
participation among others. We believe that addressing the extra cost of disability
incurred by disabled individuals can have a substantial impact on standing of living
and social inclusion.

The Irish government provides a range of public supports for the disabled, as do many
non-governmental organisations and private individuals. The level and nature of
government assistance are ultimately determined by social and political choices, but
the design of the relevant policies should benefit from evidence on how disability
affects the economic welfare of affected individuals. In this paper we define and
estimate models of the private costs borne by individuals with a disability in Ireland

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when compared to the wider population, both in general and by severity of illness or
condition. Our modelling framework is based on the standard of living approach to
estimating the cost of disability as developed in Berthoud et al. (1993) and Zaidi and
Burchardt (2005).

The definition of additional costs implied by this approach is the sum required to
bring the standard of living of a household containing a person with a disability up to
the same level as a comparable household where no members have a disability,
controlling for relevant socio-demographic characteristics. This concept of additional
cost represents an approximation of the cost for any given group considered (e.g. by
severity of disability) and involves averaging across individuals within a group. The
resulting cost estimates include direct costs and additional costs of living associated
with disability, but omit opportunity costs such as potential foregone income.

Our paper contributes to the literature in a number of ways. We present, for the first
time, estimates of the economic costs of disability in Ireland by severity of condition,
as well as for pensioner and non-pensioner households. Our paper also presents cost
of disability estimates over time, from 1995 to 2001, using the Living in Ireland
surveys. This paper improves on previous studies for Ireland by providing more up-
to-date and specific estimates, as well as by using more appropriate data to identify
households containing an individual with a disability.

The paper is organized as follows: Section 2 reviews the literature on estimating the
cost of disability and relevant previous research. Section 3 presents the standard of
living approach for estimating the economic cost of disability, while Section 4

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presents the data and discusses the variables used in our modelling. Section 5
presents estimation results and cost of disability estimates, while Section 6 sets out
concluding remarks.

2. Literature and Previous Research
Literature
Previous research, both in Ireland and internationally, has drawn on three principal
approaches to quantifying the economic costs of disability, namely direct survey
approaches (DSAs), expenditure diary approaches (EDAs) as well as indirect
approaches (IAs)1, each of which is now discussed.

The DSA to estimating the economic cost of disability, also known as the subjective
approach, involves directly asking individuals with a disability (or their carer) how
much extra they spend on specific expenditure items. The implicit counterfactual is
the same individual’s expenditures, assuming they did not have a disability. The DSA
is in practice the most straightforward approach as any additional costs identified can
be aggregated to give an estimate of total extra costs arising from a disability.
Furthermore, it is relatively straightforward and inexpensive to implement. There are
however a number of crucial disadvantages associated with the DSA. For example, it
assumes that survey respondents are in a position to provide accurate estimates of
current expenditures, which is often not the case. More crucially however it can be
especially difficult for respondents to conceive of, and estimate, their expenditures in
the counterfactual scenario. Thus the DSA is unlikely to provide accurate estimates
of the additional costs of disability (Berthoud et al., 1993).

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Expenditure diary approaches (EDAs), also known as comparative approaches, tackle
some of the problematic issues with DSAs. They involve analysing detailed
measurements of expenditures for a sample of persons with a disability, relative to
corresponding expenditures for a sample of individuals without a disability. A
comparison of expenditures can be used to identify those areas where persons with
disabilities tend to face additional expenditures. Again, however, the EDA is
problematic for a number of reasons. The costs of data collection for DSAs tend to be
large, and interpretation of the results difficult. This is because an analysis of
expenditure patterns tends to lose important variation through the effects of averaging
and detailed information on the nature and severity of the disabilities in question
would be required to separate out the effects, which is generally not available through
these data sources. Another key problem with EDAs is that “expenditure is an
accurate indicator of consumption only if it is assumed that disabled and non-disabled
people buy at the same prices. In practice disabled people may sometimes have to
pay more for the same goods or services. A trip to the shops, for example, might
require a taxi fare instead of a bus ride” (Indecon, 2004).

A third approach for estimating the economic cost of disability is an indirect approach
known as the standard of living (SoL) approach. The approach assumes that
resources, in the form of income, determine a household’s SoL and that for a given
income there will be a reduction in SoL where additional needs arise due to disability.
This reduction is a result of diverting scarce resources to disability-related goods and
services. Operationally the cost of disability is defined as the extra income required
by a disabled household to achieve the same standard of living as an equivalent
household. We consider the SoL approach in more detail in Section 3.