Introduction

This paper presents the results of an analysis of the costs and benefits of the Mainstream Supported Employment Programme (Mainstream) administered by the State Services Commission.

The paper initially considers the appropriate types of analysis of costs and benefits for a study of this kind. It then reviews the results of other cost-benefit analyses of supported employment programmes and the previous research on Mainstream. The cost-benefit analysis of Mainstream is then conducted, followed by a discussion of the method and key variables. Results are presented with the relevant spreadsheets and tables. The paper concludes with a discussion and recommendations for future directions.

Analysis of Costs and Benefits

There are two different types of analysis of costs and benefits: cost-effectiveness analysis and cost-benefit analysis⁴. Cost-effectiveness analysis identifies costs in monetary terms but states effects in non-monetary terms, while benefit-cost analysis states both costs and benefits in monetary terms.

Chinnery⁵ argues that a single number, such as that produced by the cost-benefit analysis, is not adequate to fully assess the complexity of a rehabilitation programme, because many of the benefits are unquantifiable. By contrast, the cost-effectiveness approach examines the means of achieving the desired benefits for the least cost⁶ and assumes that the benefits of the programme are indisputably worthwhile. Cost-effectiveness analysis is only appropriate when there is agreement that the project outcomes are desirable⁷. Partially because of this, Mishan⁸ argues that a cost-effectiveness analysis is usually inadequate because it cannot be assumed that there is general agreement that the project outcomes are desirable. This paper accepts that logic - it cannot be assumed that the goals of Mainstream are generally accepted within New Zealand society and therefore a cost-effectiveness analysis is inappropriate.

There are two major types of cost-benefit analysis: an economic cost-benefit analysis and a financial cost-benefit analysis. A financial cost-benefit analysis only looks at the monetary costs and benefits for the organisation concerned, whether it is a government agency or a private sector organisation⁹. By contrast, economic analysis includes all real resource costs and benefits to the community¹⁰ but excludes transfer payments such as a job subsidy. Economic analysis is more appropriate in evaluating public projects¹¹.

When evaluating the costs and benefits of a project over time, a discount rate must be used because money available now is more valuable than it will be in the future. At the very least it could be invested to create a larger sum in the future. Discount rates are typically incorporated into cost-benefit analyses using net present value (NPV) calculations. This study uses the 1997/98 capital charge rate (11%) as the discount rate.

When evaluating the economic costs and benefits of a project using money raised from taxation, the cost of that taxation to the economy should be included. There are a number of costs that arise from taxation, the most important of which is the changes in behaviour induced by taxation. This cost is calculated at 18 cents for every dollar spent on taxation¹². Therefore, for every dollar raised through taxation, there is a cost to the economy for the transfer of 18 cents.

Results of Cost and Benefit Analyses of Supported Employment

There have been several analyses undertaken internationally of the costs and benefits of supported employment¹³. Some programmes report a positive financial outcome for the taxpayer¹⁴ but others report a negative cost-benefit ratio¹⁵. However, these results improve when the total benefits to society and a comparison with alternative programmes, such as sheltered workshops, are factored into the equation¹⁶. Problems identified in these studies of supported employment include the low pay and insecurity of the jobs¹⁷, which in turn affects the financial benefits.

Very little work has been undertaken in New Zealand on the costs and benefits of supported employment. The 1995 analysis of Mainstream suggested a favourable financial cost-benefit ratio¹⁸ but the analysis did not include estimates of the levels of employment lapsing, or dead-weight. Recently the Association for Supported Employment in New Zealand (ASENZ) undertook a pilot study of the costs and benefits of ten New Zealand employment agencies¹⁹. The study found an initial negative cost/benefit ratio from a financial perspective, with the Government getting back 70 cents for every dollar spent. However, after 3.5 years of operation, favourable cost-benefit ratios begin to emerge²⁰.

Previous Research Findings about Mainstream

As noted above, a simple financial cost-benefit analysis was undertaken on the Mainstream Supported Employment Programme in 1995. Research conducted in 1997 into the effectiveness of Mainstream changed the programme from a four to a two-year programme, to allow more people with disabilities to be employed on the programme. It also meant that government agencies were more willing to participate because of the shorter time frame. However, the costs and benefits to the New Zealand Government of the new two-year programme are unknown because no economic or financial cost-benefit analysis has been undertaken.

⁴ Chinnery, D. (1991) "Costing rehabilitation services" in: Hesketh, B. & Adams, A. (Eds.) Psychological perspectives on occupational health and rehabilitation, pp. 426-453, Marrickville, NSW: Harcourt Brace Jovanovich. Treasury Board of Canada (1991) Program Evaluation Methods, Communications Division, Treasury Board of Canada.

⁵ Chinnery, (1991) op. cit.

⁶ State Services Commission (1998) Cost-benefit analysis of EEO in the New Zealand Public Service, Wellington: State Services Commission and Belkaoui, A. (1986) Handbook of Management Control Systems, Quorum Books.

⁷ State Services Commission (1998) op. cit.

⁸ Mishan, E. (1988) Cost-benefit analysis, London: Biddles Ltd.

⁹ State Services Commission (1998) op. cit. and Department of Finance, 1991 op. cit.

¹⁰ State Services Commission (1998) op. cit. and Department of Finance (1991) Handbook of Cost-benefit analysis, Canberra: Commonwealth Government Printer.

¹¹ State Services Commission (1998) op. cit.

¹² Diewert, W.E. & Lawrence, D.A. (1994) The Marginal Costs of Taxation in New Zealand, Swan Consultants Canberra Pty Ltd.

¹³ Mank, O'Neill, & Jensen (1997) Quality in Supported Employment: A New Demonstration of the Capabilities of People with Severe Disabilities, King Country Washington: Department of Community and Human Services; Beyer, S., Goodere, L., & Kilsby, M. (1996) The Costs and Benefits of Supported Employment Agencies, Cardiff: Welsh Centre for Learning Disabilities Applied Research Unit; ANUTECH Pty Ltd (1993) A financial analysis of the costs and returns of the Commonwealth Rehabilitation Service program (pp. v-vi, 75-77) Canberra: Australian National University; Liu, H.C. (1982) Minnesota DVR FY 1981 Economic Analyses. A Modified Cost/Benefit Procedure, Monograph No.5, Minnesota: Minnesota Division of Vocational Rehabilitation.

¹⁴ ANUTECH Pty Ltd (1993) op. cit. and Liu, H. C. (1982) op. cit.

¹⁵ Beyer, Goodere & Kilsby (1996) op. cit. Rusch, Conley & McCaughrin (1993) op. cit. Conley, R., Rusch, F., McCaughrin, W. & Tines, J. (1989) "Benefits and costs of supported employment: An analysis of the Illinois supported employment project", Journal of applied behaviour analysis, 22(4) 441-447.

¹⁶ Beyer, Goodere & Kilsby (1996), op. cit.

¹⁷ Beyer, Goodere & Kilsby (1996) op. cit.

¹⁸ State Services Commission (1995) Mainstream costs and benefits analysis, Wellington: State Services Commission.

¹⁹ Bennie and Associates (1997) "Supported Employment Programmes Emerging as Cost Effective", ASENZ Conference Proceedings. Palmerston North: ASENZ.

²⁰ Bennie & Associates (1997) op. cit.