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

Abstract

This article contrasts social and taxpayer return on investment measures of the vocational rehabilitation (VR) program in Virginia. To do this, we use the analyses in prior work which demonstrates 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 with and without 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 return on investment. 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. In particular, we estimate that only 29% of VR recipients have a positive taxpayer return.