Executive Summary

This paper presents a cost-benefit analysis of the Mainstream Supported Employment Programme (Mainstream).

Mainstream funds supernumerary positions in the state sector for people with disabilities. The goal of the programme is to provide people with the skills, practical experience and confidence to win and hold jobs on merit after two years in supported employment. A salary subsidy of 100% is paid for one year and 50% for the second (and final) year. Funding is also available for training participants and supervisors¹.

This cost-benefit analysis incorporates financial and economic perspectives. The financial analysis is from the perspective of the taxpayer through the taxpayer's agents, the Government, and the economic analysis from the perspective of New Zealand society.

The analysis is based on a cohort of 75 hypothetical participants who start in 1998, and follows them through the remaining years of employment. The Net Present Value (NPV) calculation includes years 1-6 and a residual value for years 7-21. Intangibles and hard-to-value items (e.g. attachment to society) are not included in the numerical analysis.

Two important sensitivities are identified in the numerical analysis. These are the number of people who would have gained employment without the use of Mainstream (dead-weight) and the number of people who fail to obtain employment at the end of the programme (lapsing).

Two sets of spreadsheets test the limits of the dead-weight variable. One assumes that there is no dead-weight. The other conservatively assumes that potential participants are as likely as other people on various forms of government support (for a minimum of one year) to gain employment without participating in Mainstream. This ignores the selection criteria of the programme which require that participants have a significant disability and be at a serious disadvantage in gaining employment.

Most costs and benefits were based on the average or "most likely value".

Economic analysis indicates positive net benefits from the first year, which accumulate further over time. The NPV is $5.9 - 8.4 million after 21 years depending upon the precise assumptions used.

The financial analysis shows a positive NPV, even with comparatively high levels of "dead-weight" or unemployment of former participants. Dead-weight caused the cumulative net benefits to remain negative for longer, taking five years instead of four before there was a positive return. With no dead-weight the total NPV is $5.5 million, but with dead-weight the total NPV is $1.8 million, over the 21-year average working life.

These analyses suggest that "dead-weight" must be kept below 25%, or that the proportion of participants who gain employment through the programme should remain above 36%. Research on previous participants, under the old four-year scheme, has found that more than 80% are in permanent employment² while, for the 1997/98 year, 73% of participants gained permanent employment.

Overall, this cost-benefit analysis indicates positive results from the programme for all parties involved, from both economic and financial perspectives. Intangible benefits of the programme, such as attachment to the workforce, greater social participation, increased self esteem, reduced needs for hospitalisation and other health care, and a more diverse and representative state sector, add further to the value of Mainstream.

¹ See SSC Working Paper No. 10 Mainstream in Context for a fuller discussion of Mainstream.

² State Services Commission (1997) Enhancing the Mainstream Supported Employment Programme. Wellington: State Services Commission.

³ No Internal Rate of Return can be calculated as there is no negative value.