Problems in Using Measures of Taxpayer Return on Investment to Evaluate Work Force Programs

33 Pages Posted: 1 Apr 2024

See all articles by Christopher M. Clapp

Christopher M. Clapp

University of Chicago - Harris School of Public Policy

John V. Pepper

University of Virginia - Department of Economics

Robert M. Schmidt

University of Richmond

Steven N. Stern

Stony Brooke University

Date Written: March 27, 2024

Abstract

This paper contrasts social and taxpayer return on investment measures of the Vocational Rehabilitation (VR) program in Virginia. To do this, we use the analyses in Dean et al. (2015, 2017, 2018) which demonstrate substantial social return to Virginia's VR program. Using this estimated model and administrative data on VR clients in Virginia, we simulate earnings that would be realized before and after VR service receipt by each client and estimate the costs of the services provided to each client. Then, given these simulation results, we compute the taxpayer ROI for the state of Virginia. Since most VR recipients have a weak attachment to the labor market (i.e., relatively low employment rates and earnings), the relatively large estimated impact of VR on earnings translates into only a small impact on the taxpayer return. That is, the cost of VR is large relative to the lifetime changes in tax receipt. For example, while the estimated median annualized rate of return for clients with physical impairments is 174% (Dean et al., 2018), we estimate that only 2.8% of VR recipients with physical impairments have a positive taxpayer return. This finding illustrates why the consensus in the economics literature is that taxpayer rates of return are not appropriate measures of program value.

Keywords: vocational rehabilitation, taxpayer return, social return, earnings, employment, disability

JEL Classification: J14, J24, J31, H24

Suggested Citation

Clapp, Christopher and Pepper, John V. and Schmidt, Robert M. and Stern, Steven N., Problems in Using Measures of Taxpayer Return on Investment to Evaluate Work Force Programs (March 27, 2024). Available at SSRN: https://ssrn.com/abstract=4778110 or http://dx.doi.org/10.2139/ssrn.4778110

Christopher Clapp

University of Chicago - Harris School of Public Policy ( email )

1155 East 60th Street
Chicago, IL 60637
United States

HOME PAGE: http://https://chrisclapp.org/

John V. Pepper

University of Virginia - Department of Economics ( email )

P.O. Box 400182
114 Rouss Hall
Charlottesville, VA 22904-4182
United States
804-924-3402 (Phone)
804-982-2904 (Fax)

Robert M. Schmidt

University of Richmond ( email )

Richmond, VA 23173
United States

Steven N. Stern (Contact Author)

Stony Brooke University ( email )

Melville Library N4004
Stony Brook, NY 11794-3384
United States

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