Social return on investment (SROI) of Minnesota ...

Social return on investment (SROI) of Minnesota Diversified Industries Providing employment to persons with disabilities since 1964

M A R C H

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Social return on investment (SROI) of Minnesota Diversified Industries Providing employment to persons with disabilities since 1964 March 2011

Prepared by: Omar Da’ar, Ph.D. Wilder Research 451 Lexington Parkway North Saint Paul, Minnesota 55104 651-280-2700 www.wilderresearch.org

Contents Summary ............................................................................................................................. 1 Introduction ......................................................................................................................... 6 Background ..................................................................................................................... 6 Study purposes and methodology ................................................................................... 7 Profile of MDI employees ................................................................................................ 11 SROI analysis and discussion ........................................................................................... 15 Benefits/outcomes ......................................................................................................... 17 Costs to society ............................................................................................................. 18 Net benefits and benefit- cost ratio ............................................................................... 20 Estimated work-life net benefits of employees ............................................................. 21 Some economic analysis of MDI activities .................................................................. 22 Limitations of the study ................................................................................................ 23 Sensitivity analysis........................................................................................................ 23 References ......................................................................................................................... 24 Appendix ........................................................................................................................... 26 Summary of relevant literature ..................................................................................... 26

Social Return on Investment of Minnesota Diversified Industries

Wilder Research, March 2011

Figures 1.

MDI six year headcount totals .................................................................................... 5

2.

Types of disabilities .................................................................................................. 11

3.

Age of employees ..................................................................................................... 11

4.

Geographic location of disabled employees ............................................................. 12

5.

Job-related benefits and public assistance ................................................................ 12

6.

Public assistance ....................................................................................................... 13

7.

Changes in wage earnings following employment at MDI ...................................... 13

8.

Skills possessed by employees with disabilities ....................................................... 14

9.

Benefit and cost framework ...................................................................................... 16

10. Average & total benefits summary ........................................................................... 18 11. Average & total costs summary ................................................................................ 19 12. Annual benefits, costs ($), and benefit-cost ratio ..................................................... 20 13. Total annual benefits and costs ($) ........................................................................... 20 14. Present value of estimated work-life net benefits ($) ............................................... 21 A1. Summary of literature – Costs and benefits of extended employment ..................... 27 A2. Summary of literature on monetizable costs and benefits ........................................ 28 A3. Summary of literature on monetary costs and benefits ............................................. 29 A4. Summary of literature on non-monetary outcomes/benefits ..................................... 30



Acknowledgments The Minnesota Diversified Industries (MDI) and Wilder Research thank the following persons for their assistance in refining the study questions and the survey instrument and in reviewing the preliminary report. These persons are: Richard Chase Paul Devereaux Jose Diaz Louann Graham Jessica Hill Ruth Hritzko Janna Langer Dale Majerus Peter McDermott Kerry Walsh Thank you also to the employees with disabilities who graciously responded to the survey.



Summary Study purposes and methodology In October 2010, Minnesota Diversified Industries (MDI) contracted with Wilder Research to conduct a benefit-cost analysis or social return on investment study of serving people with disabilities (offering progressive development and employment in competitive business enterprises). The study addresses the following questions:  What are the costs to society of providing training, employment, vocational rehabilitation, and other services to employees with disabilities?  What are the measurable outcomes of employing persons with disabilities at MDI?  What are the net benefits of employing persons with disabilities? In other words, does MDI as a social enterprise generate monetizable socio-economic benefits through employment of persons with disabilities who otherwise may not enter the workforce? In order to answer these questions, a two-part survey was administered to both program participants and MDI management. The employee survey was administered to employees with disabilities. These employees comprise about 50 percent of all MDI employees. The employee survey captured: 1) previous and current wage earnings and public assistance use; 2) the type and number of job-related benefits; 3) the type and number of skills employees learn while employed at MDI. Fifty-seven surveys out of 86 were returned, a response rate of 80 percent. The management survey captured additional information, including MDI programming costs, kind and value of skills employees learn at MDI, type and sources of MDI funds, and revenues. To a lesser degree, this study utilized additional information such as MDI annual reports.

Key findings This study finds that MDI benefits society in many respects, including increased wage earnings and job-related fringe benefits to employees with disabilities, and reduction in public assistance use, public assistance administration, and increased tax contribution to the taxpayers.1 Job-related benefits and public assistance

 88 percent of participants currently have job-related benefits, up from 19 percent prior to joining MDI. 1

The overall benefits arising from existence of MDI is likely to be much higher than reported here. A number of benefits were infeasible to express in dollars, including greater self-esteem, sociability, and quality of life of participants, and the positive spillover these intangible benefits might have on the rest of society. Social Return on Investment of Minnesota Diversified Industries

1


 44 percent of participants currently have some type of public assistance, down from 51 percent prior to joining MDI.  47 percent of participants have no change in public assistance, 30 percent have public assistance reduced, while 23 percent have public assistance increased. Changes in wage earnings

 Because of being employed at MDI, the average annual wage earnings increase for employees with disabilities is $13,721, generating total annual increased earnings of $932,982 (for all disabled employees).  91 percent of the surveyed employees have their wages increased as a result of joining MDI. Only 9 percent had their wage unchanged as a result of participating in MDI employment. Skills gained by participants

When asked about the kind of job-related skills they have from a list of eight skills:  98 percent of employees with disabilities report having four or more skills.  Nearly 26 percent report having as many as eight different sets of skills.  Skills learned include implementing quality principles, operating equipment, adhering to basic safety practices, employing interpersonal skills, displaying appropriate personal qualities, implementing manufacturing technology and techniques, performing mathematical computations, and troubleshooting and repairing equipment. Ways in which skills learned at MDI are valuable

From the perspective of MDI management, skills learned by employees with disabilities are valuable in many respects, including:  Having a sense of purpose and a higher quality of life  Learning work and social skills  Building lifelong friendships that help their emotional supports  Learning skills that give future employers the opportunity to employ people with disabilities, thereby increasing their labor pool and diversifying their workforce  Learning skills that give the opportunity for other co-workers to work with persons with disabilities


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Measured benefits (dollars) Measurable monetary benefits of providing employment to persons with disabilities accrue to participants and the rest of society, notably the taxpayers. Participants realize gains in earnings and fringe benefits  Average annual increased earnings of $13,721 are realized by employees with disabilities. This translates to total annual benefits in the form of increased earnings of $932,982.  Participants receive an average annual fringe benefit of $2,744.  Taxpayers realize reduced public assistance payments and administration costs, and increased tax contributions.  Average annual public assistance payments reduction is $384. This translates to a total annual reduction of public assistance payments of $26,113.  Average annual reduced administrative costs of $38 for total annual benefits (cost savings) of $3,917.2 These benefits accrue to the taxpayer.  Increased annual tax contributions averaging $1,921, for an annual total of $130,618 for all individuals. Net benefits and benefits costs ratio Net benefit and benefit cost ratio are two efficiency measures to express the bottom line of a benefit cost analysis. After comparing measured benefits and costs and putting them into perspective, the results indicate the following:  Society realizes a per employee annual net benefit of $12,815.  Each employee with disability realizes annual net benefits of $13,871.  MDI and taxpayers underwrite a per employee cost of $1,057.  In terms of benefit cost ratio, society realizes a return of $3 for every dollar invested in MDI activities Estimated work-life net benefits of employing persons with disabilities The benefits of employing persons with disabilities realized by society in general, including persons with disabilities, occur over multiple periods. The study finds estimated work-life net benefits of employing persons with disabilities as follows: 2

The percentages used in estimating the reduction in public assistance administration costs of public assistance and increased tax contributions are commonly used in cost-benefit studies of vocational rehabilitation programs (Sav, 1989; Zilovich, Shueman, & Weiner, 1997) cited in Hemenway et al., 1999. Social Return on Investment of Minnesota Diversified Industries

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 Each participant realizes net benefits of $276,507 or more (at today’s value) over his/ her work-life than would have been received elsewhere or without a job (or prior earnings).3  Over the same work-life, MDI and taxpayers will underwrite per employee costs of $21,062 in present value.  Over the same work-life, the net effect is that the society in general realizes per employee net benefits of $255,445.  These bottom line numbers take into account inflation and future workers’ productivity. Without these assumptions, the estimated 21-year work-life net benefits reduce by 31 percent across perspectives.

Implications This study finds evidence of increased wage earnings, reduction in public assistance use, and increased tax contributions by employees with disabilities. In addition, there is evidence that employees acquire numerous types of job-related and interpersonal skills. Thus, employees with disabilities are productive members of society and are on their way to securing their future work-life. If employees with disabilities make use of the skills they learn in their everyday work-life, then as the literature suggests, they can attain greater self-determination and greater quality of life. Moreover, the findings in this report are just part of the story of the past, present, and potential success of MDI. As shown in the figure below, MDI has historically employed and served a significant number of people with disabilities, and the study period represents a low point in MDI’s employee counts. Going forward, MDI has the potential to serve those higher numbers of people again within a social enterprise model that is economically efficient. In sum, these results indicate that MDI (as a social enterprise) makes economic and social value to society. Accordingly, such social enterprises should be accorded more resources so that they can add economic and social value in generating products or services that improve the lives of disabled employees.

3

The present value of the benefit stream represents the future benefits discounted at some rate to convert them into today’s dollars. Social Return on Investment of Minnesota Diversified Industries

4


Number of employees

1.

MDI six year headcount totals 629 530 354 287

275 202

150

2005

2006

2007

Total headcount


176

118

2008

97

2009

Individuals with disabilities

5


133

71

2010

Introduction Background Investing in social enterprises by providing real competitive employment with benefits (as in MDI) can help create socio-economic value. Employing and training disabled employees can help society in many respects. For instance, employees can learn skills that give them a sense of purpose and higher quality of life. In addition, they help their employer create social and economic value in the community. Finally, the skills they learn can give future employers the opportunity to employ people with disabilities, thereby increasing diversity in their workforce. Americans with disabilities numbered 52.6 million in 1997 and 56 million in 2002. In 2010, the number of disabled persons is estimated to be 58 million.4 Although 72 percent of people with disabilities want to work, only 32 percent ages 18-64 are employed relative to 82 percent of people without disabilities that are employed. Employers’ reactions to workers with disabilities vary, but overall they seem to contradict negative perceptions about such employees. For example, over 900 managers interviewed by the Harris Poll indicated that 39 percent of line managers rate employees with disabilities as better on attendance and punctuality than non-disabled employees, and 40 percent rate them about the same. In addition, the poll shows that 75 percent of employers surveyed indicated that the average cost of hiring people with disabilities is the same as hiring people without a disability. However, 75 percent of managers say that people with disabilities often encounter some type of discrimination. According to the Job Accommodation Network (JAN), a service of the U.S. Department of Labor's Office of Disability Employment Policy, the accommodation costs reported by businesses ranged from $250 to $5,000 for 81 percent of the businesses. However, 96 percent of the business savings ranged from $2,500 to $50,000 because accommodations were made for disabled employees. This implies that business savings realized were 10 to 20 times bigger than the cost of accommodation. Persons with learning disabilities have the ability to learn complex real work tasks that could be taught on the job (Bellamy, Horner, & Inman, 1979; Wehman, Hill, & Keohler, 1979; Wehman, 1981). Generally, studies show that transition to employment leads to an increase in income for the individual and the withdrawal, or partial reduction, of welfare benefit income. Part of the reason for the increase in income is that wages in supported employment tend to be higher than in more segregated forms of employment. For the taxpayer and society as a whole, the benefits may be less obvious in the short term, but in the long-term, savings on welfare benefit payments, the payment of taxes on earnings by 4

The 2010 figures projected from 1997 and 2002 U.S. Census Bureau data. Social Return on Investment of Minnesota Diversified Industries

6


workers, savings in the cost of using other services and the provision of other supports in the community, and the economic contribution of the individual may create positive economic benefits. A host of studies show numerous non-monetary benefits accrue to society by employing disabled employees (see summaries Tables 1 to 4). For example, employing disabled individuals leads to greater self-determination, sense of control, quality of life, and balanced work and social interaction skills by participants (Wehmeyer, 1994; McCaughrin et al., 1993; Kilsby et al., 1996; Beyer et al., 1995). Minnesota Diversified Industries (MDI) is a social enterprise as it receives approximately 95 percent of its revenue from the sale of goods and services and therefore is largely selfsufficient. MDI is a Commission on Accreditation of Rehabilitation Facilities (CARF)accredited Affirmative Business Enterprise employing people with disabilities in three Minnesota communities of Saint Paul, Hibbing, and Grand Rapids. Employees with disabilities work in an integrated setting with no employee paid less than minimum wage. MDI provides real jobs with benefits unlike sheltered workshops, which often times provide make-work. All employees are held to competitive employment standards and receive training, development, and advancement opportunities. MDI provides vocational rehabilitation services to assist employees to be successful at work and in the community. In addition, MDI provides job placement services which are available to those employees looking for jobs outside the enterprise. MDI provides a clean and friendly workplace with an outstanding safety record. As part of its objectives to serve persons with disabilities and accord them appropriate support in an integrated work environment, MDI has remained relevant. In fact, for over three decades, approximately 50 percent of the MDI employees have been people with disabilities. Less than 5 percent of MDI revenues come from a variety of other sources (grants and donations), including the State of Minnesota, the federal government, Blandin Foundation, ADC Foundation, Northland Foundation, and to a lesser extent miscellaneous cash donations.

Study purposes and methodology In October 2010, MDI contracted with Wilder Research to conduct a benefit-cost analysis or social return on investment study for serving people with disabilities (offering progressive development and employment in competitive business enterprises). The study addresses the following questions:  What are the costs to society of providing training, employment, vocational rehabilitation, and other services at MDI to employees with disabilities?  What are the measurable outcomes of employing persons with disabilities at MDI?


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 What are the net benefits of employing persons with disabilities? In other words, are the benefits accruing to society associated with provision of employment to persons with disabilities at MDI worth the costs to society? A two-part survey was administered to both program participants and MDI management. The employee survey was administered to all disabled employees, consisting of 50 percent of all MDI employees. Fifty-seven surveys out of 68 were returned, a response rate of 84 percent. The employee survey captured previous and current wage earnings and public assistance use. It also captured the type and number of public assistance use and job-related benefits. Finally, it captured the type and number of skills employees learn while employed at MDI. The management survey captured additional information, including MDI programming costs, and the kind and value of skills employees learn at MDI. We utilized this data to establish the bottom line of this study – net benefits and benefit-cost ratio. First, we clarified whose costs and benefits to measure (perspectives) and whose costs and benefits to compare (alternatives). Perspectives

The most common perspectives used when measuring and comparing economic costs and benefits related to extended center-based employment include persons (with disability) being placed on the job, the taxpayers, and society in general (Conley et al., 1989; Thompson, 1980). The framework of this study follows such studies with slight variation. For purpose of this study, society is comprised of individuals with disabilities, MDI (as a social enterprise), and taxpayers. Alternatives

Any return on investment framework requires identification of alternatives whose costs and benefits are compared. In the present framework, we have two alternatives that can be considered mutually exclusive. We consider the existence of MDI, a social enterprise, as the intervention alternative because it serves individuals with disabilities by offering progressive development and employment opportunities and other vocational services while paying market rate wages in a competitive business environment. The other alternative is the absence of MDI in society. We consider this option – of doing nothing – as the benchmark. In other words, the absence of MDI is the base case scenario, or what society would likely have experienced if MDI did not exist. It should be noted that the absence of MDI may mean a host of alternatives for persons with disabilities, including being out of work and working with other community-based rehabilitation programs.


8


Assumptions

Next, we set out these assumptions underlying the calculation of costs and benefits of providing employment to persons with disabilities:  Disabled employees would remain in MDI for at least one fiscal year.  Estimates of current earnings are based on actual wage data at MDI.  We assume that the work-life for persons with disabilities continues until retirement at age 65.  To account for any memory lapse and underreporting of earnings prior to joining MDI, we multiply by a certainty factor of 1.05.  Estimate of public assistance use is based on self-reporting of participants. However, we multiply by a certainty factor of 1.05 to account for any previous underreporting.  We assign monetary value or shadow price to cost and outcome components whenever market price is either unavailable or incomplete. Identifying costs

Then we measured program costs via the ingredient method. The idea here is that every intervention or program uses ingredients that have value or cost. If the ingredients can be identified and their costs can be ascertained, we can estimate the total costs of the intervention (Levin, et al. 2000). MDI, as an affirmative business enterprise, provides paid work on the MDI premises. It has its own premises to provide work and training services necessary for employment. More than 50 percent of its workforce consists of persons with disabilities. We have identified various components of cost to society. The main cost to society is MDI program costs attributable to activities and services related to employees with disabilities. Based on the survey administered to the management, these costs include mainly ongoing support services. Specifically, these costs include salaries, wages, and benefits for program services staffs (managers and rehabilitation specialists); general and administrative expenses; staff training and development; consulting services; medical and psychological evaluations; and other miscellaneous items including costs of membership and certification. We also identified additional costs to society such as those shouldered by participants in the form of reduced public assistance payments and increased tax contributions burden. Notice that some of the measureable benefits computed earlier are also costs to some sections of the society. For instance, what is received by taxpayers (reduction in public assistance payments and increased tax contributions) is a cost to the participants.


9


Identifying direct/monetary outcomes

In consultation with MDI, this framework captures as much as possible, tangible benefits that can be measured in monetary terms. These benefits are based on existing evidence demonstrated by the research literature. Measurable outcomes that yield tangible, monetary benefits to society for employing disabled persons with appropriate support in extended CRPs and in integrated competitive work environment include:  Increased earnings (wages)/gain in earnings  Reduced public assistance cost  Reduced public assistance payments  Increased tax contributions (income and sales) We assigned monetary values to these outcomes to arrive at benefits that we compare with costs. This comparison of all the costs and benefits of providing employment to persons with disabilities then helped us establish program bottom lines in knowing whether it is a cost beneficial to society in general. Finally, we conducted sensitivity analysis to check uncertainties regarding the likelihood of ‘data shakiness’ and establish whether the conclusion is robust to such uncertainties. Non-monetary and infeasible outcomes/benefits

A host of studies show numerous outcomes that benefit society resulting from the existence of social enterprises or extended CRPs that cannot be easily measured in monetary terms because of their subjective nature or difficulty and, therefore, are not included in this study. These outcomes include:  Greater self-determination (Wehmeyer, 1994)  Greater sense of control (McCaughrin et al.,1993)  Greater quality of life (McCaughrin et al.,1993)  Increased level of ‘joking’/sense of humor (Kilsby et al., 1996)  Increased balance between work and social talk skills (Beyer et al., 1995)  Increased consumer spending (Hemenways, et al., 1999)5  Increased sales tax contribution and other revenues (Hemenways, et al., 1999)

5

Although benefits associated with increased consumer (participants) spending are somewhat difficult to estimate, attempts could be made to measure them if costs and reliability of such data were guaranteed. Social Return on Investment of Minnesota Diversified Industries

10


Profile of MDI employees As a prelude to return on investment results and analysis, we present some variables reported in the survey that have direct or indirect bearing on the calculation of social return on investment of MDI. Types of disabilities

All surveyed employees had some type of disability. For instance, 4 percent have auditory-related disability and 25 percent have developmental/intellectual-related disability, while 41 percent have dual diagnosis. Dual diagnosis implies that they have more than one type of disability. 2.

Types of disabilities N

Percent

Dual diagnosis

24

41%

Developmental/intellectual

14

25%

Other physical conditions

7

12%

Mental illness

5

9%

Visual

3

5%

Auditory

2

4%

Orthopedic/neurological

2

4%

Total

57

100%

Age of employees

As shown in Figure 3, nearly two-thirds of these employees are ages 31 to 54. The average age of the participants is 44 years. Age is used to calculate work-life net benefits. 3.

Age of employees

Average age

4

Percent

31-54

36

63%

55+

15

26%

18-30

6

11%

Total

57

100%


11


Geographic location where employees are based

MDI activities are concentrated in three Minnesota locations: St. Paul, Grand Rapids, and Hibbing. The distribution of employees with disabilities across these locations is shown in Figure 4. Both St. Paul and Grand Rapids have 30 percent of the respondents, while 40 percent are in Hibbing. 4.

Geographic location of disabled employees

Site

N

Percent

Hibbing

23

40%

St. Paul

17

30%

Grand Rapids

17

30%

Total

57

100%

Job-related benefits, public assistance

Figure 5 summarizes job-related benefits and public assistance, which reinforce the quantitative benefits and outcomes. The summary reveals that 19 percent of respondents report having job-related benefits prior to joining MDI, while 88 percent currently have benefits. The summary also reveals that 51 percent of respondents report having some type of public assistance prior to joining MDI, while 44 percent of respondents report currently receiving public assistance. These results may reinforce the argument that disabled employees somewhat contribute to their retirement given opportunity. 5.

Job-related benefits and public assistance Previous job/work

At MDI

Job-related benefits

19%

88%

No job-related benefits

81%

12%

Total

100%

100%

Some type of public assistance

51%

44%

No public assistance

49%

56%

Total

100%

100%


12


Relating to public assistance, Figure 6 shows the disaggregated data. About 47 percent report no change in public assistance since joining MDI; 30 percent have had their public assistance reduced, while 23 percent have had their public assistance increased. 6.

Public assistance N

Percent

No change

27

47%

Public assistance reduced

17

30%

Public assistance increased

13

23%

Total

57

100%

Changes in wage earnings

The average annual wage earnings increase following employment at MDI is $13,720, generating total annual increased earnings of $932,982 for all employees. Ninety-one percent of the surveyed employees have experienced a wage increase following employment at MDI. Only 9 percent have seen their wage unchanged (see Figure 7). 7.

Changes in wage earnings following employment at MDI N

Percent

Wage increase

52

91%

No wage increased

5

9%

Total

57

100%

Skills gained by participants

In the survey, we asked employees with disabilities to identify the skills that they have gained while working at MDI from a list of eight choices. These skills included: implementing quality principles, operating equipment, adhering to basic safety practices, employing interpersonal skills, displaying appropriate personal qualities, implementing manufacturing technology and techniques, performing mathematical computations, and troubleshooting and repairing equipment. As shown in Figure 8, about 98 percent of the respondents report having four or more skills. Nearly 26 percent of disabled employees report having all eight skills. If employees with disabilities make use of these skills in their everyday work life, then, as the literature suggests, they can attain greater self-determination and greater quality of life.


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8.

Skills possessed by employees with disabilities

Number of skills

N

Percent

8

15

26%

6

15

26%

7

11

19%

5

11

19%

4

4

7%

0

1

2%

Total

57

100%

Ways in which skills learned at MDI are valuable

From the perspectives of MDI management, skills learned by employees with disabilities are valuable in many respects. For example, opportunity at MDI has given employees a sense of purpose and a higher quality of life, the chance to learn and improve work and social skills, and the opportunity to build lifelong friendships that help their emotional supports. The skills learned are also valuable by giving future employers the opportunity to employ people with disabilities, thereby increasing their labor pool. It helps the employers diversify their workforce, and it gives the opportunity for other co-workers to work with persons with disabilities. Finally, the skills learned indicate that people with disabilities are very dedicated to their employers and are hard workers. Having persons with disabilities employed in the workforce can also help reduce societal stigmas and fears through day-to-day contact.


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SROI analysis and discussion In this return on investment framework, also called social ROI or cost-benefit analysis, we compared the total benefits and costs of providing employment to persons with disabilities with the total costs and benefits that would be generated if these interventions were not provided. In presenting social return on investment, we considered two scenarios. First, we calculated average and total annual net benefits. Second, we calculated estimated work-life benefits in today’s dollars. But before presenting these bottom lines, we summarize some of the components of benefits and costs. The analysis and discussion of the ROI results follows the framework shown in Figure 9, which shows the distribution of benefits (+), costs (-), neither benefits nor costs (0), and uncertainties (+/-) for MDI employees with disabilities (participants), MDI and taxpayers, and the total of all three (social).


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9.

Benefit and cost framework Perspectives

Costs

Participants

+

(MDI+Taxpayers)

=

Social

MDI Ongoing Employment Support Services Program Services Manager (Salary & Wages)

0

-

-

Voc Rehab Specialist (Salary & Wages)

0

-

-

Voc Rehab Specialist (Salary & Wages)

0

-

-

Staff fringe benefits

0

-

-

MDI General and Administrative Expenses (10%)

0

-

-

Staff training and development

0

-

-

Consulting Services

0

-

-

Other Costs

0

* CARF Survey every three years

0

-

-

* Equipment approx. cost every three years

0

-

-

Increased earnings (wages)/gain in earning

+

0

+

Reduced public assistance payments

-

+

+

Reduction administrative costs of public assistance (10%)

0

+

+

Increased tax contributions (income, sales)

-

+

0

Participants‟ fringe benefits

+

-

0

Greater self-determination, sense of control, quality of life, increased level of „joking‟/sense of humor, increased balance work & social talk skills

+

+

+

Other non-monetary benefits

-

+

Benefit-cost ratio

+/-

+/-

+/-

Average annual net benefits

+/-

+/-

+/-

Total average annual net benefits

+/-

+/-

+/-

Benefits

Other tangible benefits Indirect & non-monetary benefits

Key: + implies benefits; - implies costs, 0 implies neither benefits nor costs, +/- implies uncertain until final numbers are plugged in.


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Benefits/outcomes Gains in earnings and fringe benefits of participants

Two tangible benefits that accrue to participants are – increased earnings and fringe benefits. The average annual earnings of the surveyed disabled employees during the time before they joined MDI was $6,073, while average annual earnings of the same disabled employees while working at MDI is $19,794. The difference in these two average earnings yields increased earnings of $13,721. This translates to total annual increased earnings of $932,982. In addition, participants receive fringe benefits. Saved public assistance payments and increased tax contributions to taxpayers

Measurable (monetizable) benefits of providing employment to persons with disabilities also include reduced public assistance payments, reduced public assistance administration costs, and increased tax contributions that accrue to the taxpayers. The average annual public assistance payment of the surveyed disabled employees during the time before they joined MDI was $3,019, while the average current annual public assistance payments of the same disabled employees is $2,635. The difference in these two average public assistance payments yields an average reduction of public assistance payments of $384. This translates to a total annual reduction of public assistance payments of $26,113. Measurable benefits of providing employment to persons with disabilities also include reduction of public assistance administration costs. Assuming 10 percent of public assistance payments, this yields an average annual benefit of $38 for total annual benefits of $3,917.6 These benefits accrue to the taxpayer. The increased tax contribution is calculated using federal and state wage-based tax rates, as well as Medicare and social security. This yields increased annual tax contributions averaging $1,921 for an annual total of $130,618 for all individuals.

6

The percentages used in estimating the reduction in public assistance administration costs of public assistance and increased tax contributions are commonly used in cost-benefit studies of vocational rehabilitation programs (Sav, 1989; Zilovich, Shueman, & Weiner, 1997) cited in Hemenway et al. 1999. Social Return on Investment of Minnesota Diversified Industries

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10. Average & total benefits summary

Benefit category Earnings before Earnings currently Increased earnings Fringe benefits

a

a

Increased tax contributions

b

Public assistance payment (before) Public assistance payment (current) Reduction in public assistance payment

b

Reduction in public assistance cost (10%)

b

a

Implies benefit accrues to participants (disabled employees).

b

Implies benefit accrues to MDI or taxpayers.

Average annual benefits ($)

Total annual benefits ($)

6,073

412,981

19,794

1,345,963

13,721

932,982

2,744

186,596

1,921

130,618

3,019

205,303

2,635

179,191

384

26,113

38

3,917

The overall benefits arising from the existence of MDI is likely to be much higher than reported here. A number of benefits were infeasible to express in dollars, including selfesteem, sociability, greater quality of life of participants, and the positive spillover these intangible benefits might have on the rest of society.

Costs to society Costs to society may be seen from the perspectives of MDI, participants, and the taxpayers. From the survey and data from MDI management, direct costs and computed indirect annual cost to society are estimated at $427,107. This is an annual, per disabled employee cost of $6,281. The breakdown of the cost to society is as follows:


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11. Average & total costs summary Cost category Increase tax contribution (wage)

a

Employer contribution to retirement Increase tax (sales)

a

Reduction in Public Assistance use Salaries, Wages & Benefits

a

b

Staff training & development Consulting services

b

b

b

Medical & Psychological evaluation

b

a,

Other costs * Total *

Other costs include (Equipment & CARF survey).

a

Implies cost underwritten by participants (disabled employees).

b

Implies cost underwritten by MDI.

Average annual costs ($)

Total annual costs ($)

1,921

130,618

1,050

71,373

288

19,593

384

26,113

2,116

143,911

44

3,000

74

5,000

184

12,500

221

15,000

6,281

427,107

Cost to MDI

We have computed components of MDI program costs attributable to activities and services related to employees with disabilities. Based on the survey administered to the management, these costs include mainly ongoing support services. Specifically, these costs include salaries, wages, and benefits. Further, these can be broken down into costs related to program services staff (managers and rehabilitation specialists); general and administrative expenses. There are additional costs such as staff training and development, consulting services, medical and psychological evaluations, and other miscellaneous items including cost of membership and certification. Finally, MDI shoulders the employer portion of the payroll taxes. On an annual basis, about $250,784 of the cost is underwritten by MDI as an employer. This accounts for about 59 percent of the overall cost to society. Cost to employees with disabilities

On their part, participants shoulder about 41 percent of costs to society estimated to be $176,323 in the form of reduced public assistance payments and increased tax contributions to the taxpayers (wage and sales). Notice that some of the measureable benefits computed earlier are also costs to some section of the society. For instance, what is received by taxpayers (reduction in public assistance payments and increased tax contributions) is a cost to the participants.


19


Net benefits and benefit- cost ratio Net benefit and benefit-cost ratio are two efficiency measures which express the bottom line of a benefit-cost analysis. The difference between measured benefits and costs is net benefits. As shown in Figure 12, the average annual societal net benefit is $12,815. Putting this in perspectives, the participants realize an average annual net benefit of $13,871, while MDI and taxpayers together shoulder an average annual net cost of $1,057. 12. Annual benefits, costs ($), and benefit-cost ratio Perspectives

Participants

MDI + (Taxpayers)

Society

Average annual benefits

16,464

2,631

19,096

Average annual costs

2,593

3,688

6,281

Average annual net benefit

13,871

(1,057)†

12,815

6

0.70

3

Average annual benefit cost ratio †

Parentheses indicate net cost.

In terms of serving all disabled employees, society in general realizes a total annual net benefit of $871,406. Again in perspectives, the participants realize total annual net benefits of $943,256, while MDI and taxpayers shoulder total annual net benefit (cost) of $71,850 (See Figure 13). The benefit-cost ratio is the ratio of benefits to costs. Overall, society realizes a return of $3 for every dollar invested in MDI activities. For every dollar invested in MDI, participants realize $6 in return, while MDI and taxpayers realize $0.70 in return. 13. Total annual benefits and costs ($) Perspectives MDI Participants

+ Taxpayers

Society

1,119,579

178,934

1,298,513

Total costs

176,323

250,784

427,107

Total annual net benefit

943,256

(71,850)

871,406

6

0.70

3

Total benefits

Benefit cost ratio †



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Estimated work-life net benefits of employees The benefits of employing persons with disabilities realized by society in general occur over multiple periods. Assuming that MDI is sustainable and that current disabled employees participate in employment for the rest of their working life, we estimate worklife benefits from present value of a 21-year benefits stream.7 The 21 years (remaining work-life) is the difference between the average age of the surveyed individuals (44 years) and the assumed retirement age of 65 years. From the average annual net benefit, we calculate average estimated 21-year work-life net benefits in today's dollars. These parameter assumptions take into account future raises in wages and cost of living.8,9 14. Present value of estimated work-life net benefits ($) Perspectives Participants

MDI + Taxpayers

Society

Average estimated 21-year work-life net benefits in today's $ (with inflation of 3% & productivity of 1%)

276,507

(21,063)

255,445

Average estimated 21-year work-life net benefits in today's $ (without inflation & productivity)

191,719

(14,604)

177,115

Total estimated 21-year work-life net benefits in today's $ (with inflation of 3% & productivity of 1%)

18,802,460

(1,432,219)

17,370,241

Total estimated 21-year work-life net benefits in today's $ (without inflation & productivity)

13,036,883

(993,044)

12,043,838

†


Taking into account future inflation and productivity of workers, the present value of these benefit streams using a 5 percent discount rate generates per employee net benefits of $276,507 or more (at today’s value). In other words, these net benefits realized by each employee over his/her work-life would not have been received elsewhere or without a job (or

7

Present value is the value on a given date of a future payment or income, discounted to reflect the time value of money and other factors such as investment risk. This concept is widely used in economics to provide a means to compare income streams or cash flows at different times.

8

We present two sets of work-life benefits. In one set we have taken into account inflation (cost of living) and productivity (due to workers’ skills gain).

9

Bureau of Labor Statistics: In 2009 the inflation rate was 2.72 percent, but over the past 30 years inflation has averaged 3.51 percent annually. The CPI attempts to measure the rate of inflation experienced by the average consumer. We have used only one number for all but depending on lifestyles and locality, costs for housing, food, and medical care may vary within the state and nationally. Social Return on Investment of Minnesota Diversified Industries

21


prior earnings).10 On average, it will cost MDI and taxpayers an estimated $21,062 in present value over the same work-life. The net effect is that society in general realizes an average $255,445. In terms of total work-life net benefits, all participants realize $18,802,460; the taxpayers incur $1,432,219, while society in general realizes a net benefit of $17,370,241. However, without assuming inflation and workers’ productivity, the total estimated 21-year work-life net benefits reduce by 31 percent across perspectives (see Figure 14).

Some economic analysis of MDI activities Having seen that society in general realizes a $3 return on each $1 invested in MDI, we further conducted economic impact analysis to inform decision makers and the public in general about how and what form such costs and benefits will be eventually distributed in the local economy. Accordingly, we explored whether activities of MDI have any impact on the local economy. MDI has been in existence for more than four decades. For any given year (as found in the previous section), MDI has had direct impact in terms of economic activities (jobs and income). For 2008-2009, the direct impacts associated with MDI activities include spending of $11.7 million in the economy. Also, in the fiscal year 2008-2009, MDI has generated $12 million in revenues by transacting with other players in the local and national economy. In addition, MDI generates indirect impacts in the local and regional economy. From the historical spending of MDI and the employment of persons with disabilities, we attempt to estimate some of these indirect impacts. Other things being equal, MDI as a social enterprise appears to exhibit increasing scale because the percentage change in its spending (input) results in greater percentage change in the number of persons with disabilities employed. Also, extrapolated data from the MDI annual report shows that 1 percent increase in spending leads to a 5.4 percent rise in increased earnings. Finally, there are induced impacts generated by MDI activities even though it is hard to measure because of paucity of relevant data. For instance, consider the effects of spending by households in the local economy as the result of direct and indirect effects from MDI activities in the three localities. Employees with disabilities certainly spend their earned income in the community in rent and consumption.11,12

10

The present value of the benefit stream represents the future benefits discounted at some rate to convert them into today’s dollars.

11

Although benefits associated with increased consumer (participants) spending are somewhat difficult to estimate, attempts could made to measure them if costs and reliability of such data were guaranteed.

12

MDI generates additional $401,697 income revenues from state/Federal grants and donations. However, these are merely transfers from one section of society to another and have not been used to calculate the net benefits or benefit cost ratios. Social Return on Investment of Minnesota Diversified Industries

22


Limitations of the study There are limitations inherent in estimating costs and benefits. In the interest of space, two limitations relevant to this study will suffice. Chief among these is the computation of intangible benefits generated by programs, projects, or policies. For instance, this study finds that MDI generates a number of important and potentially significant intangible benefits, including self-confidence and life-long skills. However, because these benefits cannot easily be monetized, we have not included their monetary values in the final SROI calculations. Hence, the social return reported in this analysis understates the true social value created by MDI. Accordingly, the SROI should be interpreted conservatively. There is also a limitation related to longevity of employees. The work-life net benefits we report are based on longevity of employees in terms of remaining in gainful employment until retirement at age 65. This assumption may be a bit stretched given the very challenges faced by persons with disabilities. Thus, the work-life net benefits may be less conservative.

Sensitivity analysis We conducted sensitivity analysis to check uncertainties regarding the likelihood of ‘data shakiness’ and establish whether the conclusion is robust.13 As mentioned, benefits of employing persons with disabilities realized by society occur over multiple periods depending on discount rates. The results discussed earlier are generated using 5 percent base interest rate. Varying discount rate from 3 percent to 11 percent (within the limit of the theoretically plausible rates), the average annual present value of the work-life net benefits varies from $167,483 to $338,390 (at today’s value). Over the same work-life, it will cost the rest of society/taxpayers an average of $12,758 to $25,776 in present value. The net effect is that society in general realizes an average annual net benefit between $154,726 and $312,615. Thus, estimated present value work-life net benefit stream either increases by 22 percent (using 3% discount rate) or reduces by 39 percent (using 11% discount rate). However, the bottom line of the net benefits realized by society does not change, indicating that the results are robust to uncertainties that may be present in the data.

13

In non-technical terms, sensitivity analysis is a way to predict the outcome of a decision if a situation turns out to be different compared to the key prediction(s). Social Return on Investment of Minnesota Diversified Industries

23


References Beyer, S., Kilsby, M. & Willson, C. (1995). Interaction and engagement of workers in supported employment: A British comparison between workers with and without learning disabilities. Mental Handicap Research, 8(3), 137-155. Conley, R.W, Rusch, F.R.,& McCaughrin, W.B., Tines, J. (1989). Benefit cost analysis of one of the states’ implementing supported employment of in Illinois. Journal of Applied Behavior Analysis, 22(4), 441-447. Hemenway, D.E.,& Rohani, F. (1999). BCA of the employment of people with disabilities in Florida. Tallahassee, FL: Educational Services Program, Florida State University. Hill, M., & Wehman, P. (1983). CBA of placing moderately & severely handicapped individuals into competitive employment. Journal of the Association for the Severely Handicapped (JASH), 8(1), 30-38. Kilsby, M., & Beyer, S. (1996). Engagement and interaction: A comparison between supported employment and ATCs. Journal of Community and Applied Social Psychology, 6(2), 141-152. Lee, D. et al. (2003). Cost-benefit analysis of a supported employment program: An experience in Korea. The Journal of Rehabilitation, 69(1), 46-52. Levin, H.M, & McEwan, P.J. (2000). Cost-effectiveness analysis: Methods and applications. 2nd Edition. McCaughrin, W. B., Ellis, W. K., Rusch, F. R., & Heal, L. W. (1993). Cost-effectiveness of supported employment. Mental Retardation, 31(1), 41-48. McCaughrin, W.B, Rusch, F.R., Conley, R.W, & Tines, J. (1991). A benefit-cost analysis of supported employment in Illinois: The first 2 years. Journal of Developmental & Physical Disabilities, 3(2), 129-145. Noble, J. H., Conley, R. W., Banerjee, S., & Goodman, S. (1991). Supported employment in New York state: A comparison of benefits and costs. Journal of Disability Policy Studies, 2(1), 39-73. Noble, J., & Conley, R. (1987). Accumulating evidence on the benefits & costs of supported & transitional employment for persons with severe disabilities. Journal of the Association of the Severely Handicapped, 12(3), 163-174. Rogers et al. (1995). A benefit-cost analysis of a supported employment model for persons with psychiatric disabilities. Evaluation & Program Planning, 18(2), 105115. Rusch, F., Conley, R., & McCaughrin, W. (1993). Benefits & costs of supported employment in Illinois. Journal of Rehabilitation, 59(2), 31-36. Uvin, J., Karaaslanli, D., & White, G. (2004). Common Wealth Corporation. Research & Evaluation Briefs,2(12).


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Wehmeyer, M. L. (1994). Employment status and perceptions of control of adults with cognitive and developmental disabilities. Research in Developmental Disabilities, 15(2), 119-131. Wehman, P., Hill, J.W., & Keohler, F. (1979). Placement of developmentally disabled individuals into competitive employment: Three case studies. Education and Training of the Mentally Retarded, 14(4), 269-276.


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Appendix Summary of relevant literature Relevant literature on social returns on investment of community-based rehabilitation programs are summarized below:


26


A1. Summary of literature – Costs and benefits of extended employment Author(s) Rogers et al. (1995)

Benefit cost ratio and other results

About & Method

BCR = 16 society Overall BCR = 0.90 Participants experienced significant monetary & non-monetary benefits including reduction in use of mental health services, increased wages and time in integrated employment settings.

Journal

“A Benefit-Cost Analysis of a supported employment model for persons with psychiatric disabilities.”

Evaluation & Program Planning, 18(2),105-115

BCA of the employment of people with disabilities in Florida Estimated BC of vocational rehab services based on 29,475 individuals participating in Florida vocation Rehab program

Report: Educational Services Program, Florida State University

“A Benefit-Cost Analysis of Supported Employment in Illinois. The first 2 years.”

Journal of Developmental & Physical Disabilities 3(2),129-145

BC analysis of one of the states‟ implementing supported employment of in Illinois

Journal of Applied Behavior Analysis,22(4), 441-447

Increased advocacy efforts by staff, inability to quantify intangible benefits that accrued to subjects, significantly lower than the BCR. Hemenway, D.E., & Rohani, F. (1999)

BCR = 16 society

McCaughrin, W.B, Rusch, F.R., Conley, R.W., &Tines, J. (1991)

A BCA during FY1987 and FY1988.

Benefits to public sector include – reduced public assistance use & increased tax contributions, increased consumer spending & economic stimulus resulting from increased earnings of participants Benefits and costs were identified and calculated from three perspectives. BCR = 0.82 (average) first 2 years combined. BRC= 0.75 for society in 1987 and 0.88 in 1988. BCR = 0.73 for taxpayer (average) for first 2 years combined. BCR = 0.66 during FY1987 for taxpayer and 0.78 for FY1988. Supported employees who began working in FY1987 and continued during FY1988 earned 37% more in supported employment than in their alternative programs in FY1987 and 67% more in FY1988.

Conley, R.W., Rusch, F.R., McCaughrin W.B., &Tines, J. (1989)

BCR = 0.75 Supported employees realized 37% increase in earnings over 1987 FY


27


A2. Summary of literature on monetizable costs and benefits Author(s) Noble, J., & Conley, R. (1987)

Benefit cost ratio and other results

About & Method

Supported employment programs are less costly than other programs, Earnings of supported employments were highest. Taken together, these results suggest supported employment is cost beneficial to society.

Noble, J. H., Conley, R. W., Banerjee, S., & Goodman, S. (1991)

Estimated earnings were 2.15 times greater than before supported employment, but costs were higher when compared to alternative programs (between 83%-91% higher), yielding a societal benefit: cost ratio of 0.69.

Journal

“Accumulating evidence on the benefits & costs of supported & transitional employment for persons with severe disabilities.” Considered adult rehab programs e.g. sheltered workshops, work activities centers, adult daycare centers, &supported employment.

Journal of the Association of the Severely Handicapped, 12(3), 163-174

Reported data from 45 agencies serving a total of 1,250 clients with various kinds of disabilities receiving individual supported employment in New York State.

Journal of Disability Policy Studies, 2(1), 39-73

“Benefits & Costs of supported employment in Illinois.” Analyzed B & C of supported employment in Illinois during four FYs 1987 to 1990 from social, taxpayer, & employee perspectives.

Journal of Rehabilitation, 59(2), 31-36

“CBA of placing moderately & severely handicapped individuals into competitive employment.”

Journal of the Association for the Severely Handicapped (JASH), 8(1), 30-38

75% of society benefits came from decreased use of alternative programs. Overall, costs exceeded taxpayers' benefits giving a ratio of 0.60 (this can be interpreted as a $0.60 return on each $1 spent). Differences in costs & benefits were found between different disability groups. For people with a learning disability, a BCR= 0.39 for those with a mild, & 0.49 for people with a more severe disability. Rusch, F., Conley, R., & McCaughrin, W. (1993)

On average, BCR = 0.91 for society, 0.77 for taxpayer, supported employees increased their net earnings by 42%. However, on the final FY, BCR = 1.09 for society, 0.89 for taxpayer, & supported employees increased their net earnings by 57%

Hill, M., & Wehman, P. (1983)

Four year supported employment yielded BCR = 1 to 1.2 or $90,000 net benefit (620,000 – 530,000) Data for 8 years, BCR = 1 to 1.5 Direct financial benefit to taxpayers for 4 years =$90,376, including tax money saved The clients' cumulative earnings were over $500,000. (Author/SEW)


28


A3. Summary of literature on monetary costs and benefits Author(s) Wehman and Hill (1989)

Benefit cost ratio and other results Average: employees earned more in 1 month than they did in 1 year before their placement During the first 2 years taxpayer costs > benefits. By the 3rd year, net benefits to the taxpayer were greater than costs and they continued to increase over the eight year period. By 1986, for every $1.00 invested the taxpayer realized a return of $2.93.

Uvin, J., D. Karaaslanli; White, G. (2004) Common Wealth Corporation

Average projected increase in lifetime earnings for consumers who received services is about $60,000 per individual. BCR= $14 to $18: The returns to society based on these projected increases in lifetime earnings for consumers who received services range from $14 to $18 for each $1 invested in the MRC Public VR Program. BCA of $5–$7 is returned to the government in the form of increased taxes and reduced public assistance payments for every $1 invested in the VR Program.

About & Method Followed a group of 214 consumers who had taken part in individual placement supported employment between 1978 & 1986 in a university based supported employment scheme. Majority had moderate learning disabilities. Mean length of time in employment was 21 months.

Wehman, P., Hill, J.W. and Keohler, F. (1979) Placement of Developmentally Disabled Individuals into Competitive Employment: Three Case Studies. Education and Training of the Mentally Retarded, 14, 269-276.

Two methods were used to estimate the costs and benefits of the VR Program. Vocational Rehabilitation Program Pays Off. Evaluation of Massachusetts Public Vocational Rehabilitation Program to determine ROI of public resources in activities funded by the MRC VR program. Primary data drawn from Massachusetts Rehab Commission for FYs 1999 and 2000.

Research & Evaluation Briefs, 2(12), March 2005

Gross earnings gains of consumers in the first year after closure =~ $43 million, & these earnings might have a multiplier effect of $48 million in indirect and induced economic outputs as a result of employer investments and increased household spending. Increase in economic activity may generate as many as 500 new jobs. Benefits of the MRC Public VR Program far outweigh its costs and the program pays for itself multiple times. BCR=1.7 for the first 10 years and 5 for lifetime. Some of the benefits to the taxpayer were reduction in public and tax contributions, with former constituting more than 50%. Other benefits include- enhanced employability of participants. Social Return on Investment of Minnesota Diversified Industries

Journal

29


A4. Summary of literature on non-monetary outcomes/benefits Author(s) Wehmeyer, M. L. (1994)

McCaughrin, W. B., Ellis, W. K., Rusch, F. R. & Heal, L. W. (1993)

Beyer, S., Kilsby, M., & Willson, C. (1995).

Kilsby, M., & Beyer, S. (1996).

Benefit cost ratio and other results Greater self-determination, sense of control & quality of life Workers in programs providing competitive employment reported feeling a greater sense of control over their lives than those within a sheltered setting or unemployed. He also found that reported levels of sense of control and quality of life were significantly lower amongst those within a sheltered setting than amongst those in open employment. Quality of life Workers in supported employment scored significantly higher than those in sheltered workshops. Degree of dependency was a factor: people with mild learning disabilities scoring less favorably than those in sheltered workshops on worker loneliness, while those with moderate or severe learning disabilities scored higher on both. Increased balance work and social talk skills Their pattern of interaction changed in the balance between work and social talk, and in frequency of interaction, becoming more like those observed among their non-disabled colleagues than people with a learning disability observed in day centers. Greater level joking Found in supported employment setting there was a greater level of joking that was considered to be a positive indication of social acceptance.


About & Method

Journal

In investigating self-determination as a key outcome for people with a learning disability

Research in Developmental Disabilities, 15(2), 119-131.

Study of workers in two projects probing people's quality of life through use of a worker loneliness scale, and assessments of the degree of integration into the workplace and degree of involvement with nondisabled co-workers.

Cost-Effectiveness of Supported Employment. Mental Retardation, 31(1), 41-48.

When people with a learning disability moved from traditional day centers into supported employment?

Mental Handicap Research, 8(3), 137-155

Comparing social interaction of disabled persons in day centers and supported employment setting in UK.

Journal of Community and Applied Social Psychology, 6(2), 141-152

30
