Law, Economics, and Accommodations in the Internal Labor Market


This article argues that employers can derive economic benefits from providing their incumbent employees with accommodations in some, perhaps many, circumstances. Thus, an economically rational employer should welcome negotiations over accommodations with their incumbent employees with disabilities as a fertile opportunity to reap increased benefits from its relationship with those employees.

The article applies “internal labor market theory” to assess how employers benefit from providing accommodations. This labor economics theory considers the causes and effects of barriers to competition found in the labor market consisting of an employer’s incumbent workforce. Internal labor market theory holds that these barriers to competition can increase the efficiency of the relationships between employers and employees. The article argues that efficient accommodations are not merely facilitated by the internal labor market’s competitive barriers. Employer-provided accommodations and employees’ impairments are competitive barriers that can increase the efficiency of relationships between employers and their employees with disabilities.

Since accommodations issues involving incumbent employees frequently arise in an internal labor market, understanding the internal labor market’s competitive barriers and their effects on the employment relationship is critical to assessing when and whether employers will reap an economic benefit from providing an accommodation to an incumbent employee with an impairment. Thus, this article makes a new contribution to an ongoing debate among a long list of prominent disabilities and employment discrimination scholars whose economic analysis of accommodations issues did not take the internal labor market into account. Since a very large majority of employment discrimination claims, including ADA claims, are brought by incumbent employees rather than job applicants, this article’s internal labor market analysis contributes an important and heretofore unwritten chapter — possibly the largest chapter — to the story of the economics of accommodating workers with disabilities.


Labor and Employment Law | Law and Economics

Date of this Version

January 2006