Australia built the world's most ambitious disability support scheme. A decade on, its effects on the labour market are more complicated – and more contested – than anyone anticipated.
On paper, the National Disability Insurance Scheme was designed to do two things at once: give Australians with significant disability the funded support they needed to live well, and, by doing so, make it easier for them to participate in the workforce. The Productivity Commission, in its landmark 2011 report that laid the intellectual foundation for the NDIS, was explicit about the employment dividend the scheme was expected to generate. Individualised funding, it argued, would build capacity, reduce dependence on carers, and create pathways to paid work.
More than a decade into the scheme's rollout, the employment picture is more complicated. The number of NDIS participants has grown to 761,442 as of December 2025 – a staggering expansion from the 298,816 participants recorded in June 2019. The scheme now costs $41.4 billion annually and is forecast to reach $44.6 billion in 2025–26. The Australian government actuary suggested in 2024 that costs could reach $125 billion per year by 2034 if growth is not brought under control.
And yet only 25% of NDIS participants of working age who are in the labour force were in open employment at full award wage as of the most recent data, according to the Australian Institute of Health and Welfare. This represents a modest improvement from a baseline of 20% recorded in 2021-22 – but it also means that three-quarters of working-age participants who are nominally in the labour force are not in mainstream employment at full award wages. Seventy-seven per cent of those NDIS participants who do work are in open employment; the remainder work in supported settings at less than full award wages.
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The question that employers have begun to ask – quietly, and with some unease about how it sounds – is whether the NDIS, in its generosity, has altered the calculus for some Australians about whether paid employment is worth pursuing at all.
The arithmetic of dependency
The concern is structural rather than moral. It rests on a well-established economic principle: when non-work income is high enough, and when entering employment triggers the loss of that income, the financial incentive to work is diminished. This is sometimes called a welfare trap, or in technical parlance, a high effective marginal tax rate on earned income.
The NDIS operates independently of the Disability Support Pension, but the two interact in ways that matter. According to data from the Australian Federation of Disability Organisations, approximately 77% of NDIS participants receive the Disability Support Pension. For many, NDIS funding and the DSP together constitute a substantial and relatively secure income floor. When a participant begins working and earning, their DSP may be reduced, their NDIS plan may be reassessed, and the practical complexity of managing work alongside disability supports increases considerably.
The Grattan Institute, in its August 2025 report Saving the NDIS, noted that NDIS costs had grown by an average of around 24% per year over the four years to 2024. That growth was driven not only by new participants entering the scheme but by rising average payments per person, up 7% in 2023–24 alone. People are, on average, receiving more generous packages with each successive plan – a dynamic that, whatever its causes, makes the financial gap between staying on the scheme and entering employment harder to bridge. “The scheme has grown too big, too fast,” wrote the authors. “Growing at about 24% per year on average from 2020-2024, it is one of the fastest-growing pressures on the federal budget and risks crowding out other services that could benefit all disabled Australians.”
Academic research on welfare disincentives is more nuanced than the political debate often acknowledges. A 2011 study published in The Australian Journal of Labour Economics found, using data from the Household, Income and Labour Dynamics in Australia survey, that financial disincentives as measured in any given period had a significant effect on employment outcomes one year later. The replacement rate – the ratio of non-work income to potential earned income – was identified as the most meaningful predictor of whether unemployed individuals transitioned into work. More recently, a 2026 peer-reviewed study in Social Policy & Administration found that policy interventions designed to improve employment capacity for people with disability had "made little progress" over a twenty-year period, and that Australians with disability continue to experience an unemployment rate approximately twice that of people without disability – a gap that has remained "largely unchanged."
None of this establishes that the NDIS is causing people to deliberately choose welfare over work. The barriers that keep people with disability out of employment are numerous, well-documented, and largely unrelated to the generosity of their funding packages. Employer discrimination – documented extensively by the Australian Human Rights Commission – remains pervasive. Workplace inflexibility, transport difficulties, the physical demands of many jobs, and the cognitive and emotional cost of managing a disability alongside work all weigh heavily. The labour force participation rate for Australians with disability aged 15–64 rose to 60.5% in 2022, up from 53.4% in 2018, which suggests the direction of travel is positive. But it still sits nearly 25 percentage points below the 84.9% participation rate for Australians without disability.
The question is whether, for some participants at the margin – those who could work, in some capacity, if the conditions were right – the combination of NDIS funding, DSP, and the complexity of managing the transition to employment is tipping the balance toward not trying.
What employers are actually experiencing
For employers, the NDIS's effects on the labour market are felt in two distinct and seemingly contradictory ways. The scheme has simultaneously tightened the supply of workers across broad sectors of the economy, while also being cited by some employers as a factor in reduced job applications from people who might previously have been available to work.
The first effect is direct and measurable. The NDIS has created an enormous demand for disability support workers, care workers, allied health professionals, and administrative staff. The NDIS Review's workforce paper estimated in May 2023 that an additional 128,000 workers would be needed by mid-2025 to meet expected participant needs – representing around a 40% growth in the NDIS workforce, which at the time numbered approximately 325,000 people. That figure was already well short of demand; the Joint Standing Committee on the NDIS had earlier estimated that 83,000 additional workers were needed by 2024.
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The effect on broader labour markets has been substantial. As Indeed's 2026 Jobs and Hiring Trends Report noted, healthcare and social assistance drove more than a quarter of all Australian job gains over the preceding five years, with approximately 670,000 positions added in that sector since the pandemic. That scale of growth – driven partly by NDIS expansion and partly by aged care demand – drew workers away from retail, hospitality, construction, manufacturing, and other sectors that were simultaneously trying to recover and grow. The competition was not just about wages; it was about the attractiveness of care work for workers who valued flexibility, purpose, and the relative security of publicly-funded employment.
The second effect – reduced labour supply from NDIS participants themselves – is harder to quantify but increasingly discussed in employer and policy circles. The NDIS Participant Employment Strategy 2024–2026, published by the NDIA, acknowledged explicitly that employment outcomes for NDIS participants have not improved at the pace the scheme's architects hoped. It flagged, among several barriers, the complexity of transitioning from welfare to work within a scheme whose planning processes were not historically designed to actively support employment goals. "We must be nimble in how we respond to these reforms and ensure the interests of NDIS participants remains front and centre," the strategy noted.
The scheme has since moved to address some of this. The government committed $5.4 billion over five years from 2024–25 to help more people with disability prepare for and find employment, including through a new specialist disability employment programme that replaced the previous Disability Employment Services model in July 2025. The rate of NDIS participants aged 15 to 24 in the scheme for two years or more who were in paid work more than doubled, reaching 23%, according to the March 2025 NDIS quarterly report. That is a real improvement, though it also reveals how far below the population norm the starting point was.
The structural tension
There is an inherent tension in any disability support scheme between two legitimate goals: ensuring participants receive enough support to live with dignity and security, and ensuring that the scheme does not inadvertently make participation in the mainstream economy less rational than it would otherwise be.
The NDIS, by design, is not means-tested and is not contingent on work activity. That was a deliberate and principled decision, rooted in the recognition that disability support should not be conditional on labour market participation the way that older forms of welfare were. The scheme's architects were rightly wary of replicating a system that had historically used the threat of losing support as a lever to compel people into work that was often unsuitable or exploitative. The NDIS represents a genuine advance in how Australia treats its citizens with disability, and no serious analyst disputes that.
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But the absence of work conditionality, combined with the scheme's growing generosity, creates a situation that economic theory has consistently identified as generating work disincentives — particularly at the margin where working capacity is real but not substantial, and where the gap between what can be earned and what the scheme provides is narrowest. Academic research in the Australian context, including the 2011 HILDA-based study, identified that replacement rates facing unemployed individuals were significantly correlated with the likelihood of entering employment one year hence. The NDIS has, for many participants, materially raised that replacement rate.
The NDIA's own data complicates the picture further. NDIS quarterly data shows that "the percentage in a paid job remains stable or declines for all age bands" except the 15 to 24 cohort, where there is some improvement. For participants aged 25 and over – the bulk of the working-age cohort – paid employment rates are not rising as participants spend more time on the scheme. Whether that reflects deteriorating health, entrenched barriers, or reduced motivation is impossible to disentangle from the aggregate data. But the pattern is worth watching.
What this means for employers
For Australian employers, particularly those in sectors that have historically employed people with disability – retail, hospitality, food service, manufacturing, administrative services – the practical implications are several.
The first is that the pool of workers with disability who are actively seeking employment may not grow at the rate that raw participant numbers suggest. The scheme now covers more than 761,000 Australians, a cohort that, if employment rates were comparable to those of non-disabled Australians, would represent a substantial labour force contribution. The gap between that potential and the 25% full-award-wage employment rate of working-age participants suggests that employers cannot rely on NDIS expansion to ease their hiring pressures.
The second is that employers who want to access this labour pool face meaningful barriers on their own side. The NDIS Participant Employment Strategy acknowledged that much of the policy focus has been on supply-side interventions – building participant capacity for work – while demand-side barriers, particularly employer attitudes and workplace inflexibility, have received insufficient attention. A 2026 study in Social Policy & Administration found that the assumption underpinning Australian disability employment policy – that building individual capacity would cause the market to employ more people with disability – had not been borne out, because it failed to adequately account for "the systemic barriers that restrict people with disability's access to employment."
The third is fiscal. Every year that the NDIS grows faster than employment outcomes improve, the scheme's cost-to-benefit ratio worsens. The original Productivity Commission modelling that justified the NDIS assumed, as part of its cost-benefit analysis, that improved support would translate into higher economic participation rates. The Australian Financial Review reported in 2024 that economists and business operators believed the NDIS's uncontrolled growth was contributing to Australia's inflation and productivity problem. Australia now spends more than $84 billion annually – more than 3% of GDP – on disability-related expenditure including the NDIS, the DSP, and carer payments. That is a significant drag on productivity if the employment dividend the scheme was designed to generate continues to underperform.
The harder questions
None of this is to suggest the NDIS should be wound back, or that people with disability who are unable to work should be pressured into employment they cannot sustain. The evidence does not support the conclusion that participants are en masse choosing welfare over work for simple financial reasons. The barriers are real, the discrimination is real, and the physical and cognitive demands of managing disability are real.
But the harder question – one that employers, policymakers, and the broader community have been reluctant to ask directly – is whether the architecture of the scheme, as it has evolved, is inadvertently making employment less rational for some of the people it was designed to liberate. If a participant's NDIS package, combined with the DSP, provides a standard of living that a minimum-wage job in a casual setting cannot easily match, and if the process of finding and keeping that job requires navigating complex support transitions and risking plan reassessment, then the choice not to seek work is not irrational. It is a reasonable response to the incentive structure as it exists.
Fixing that structure does not require making the NDIS less generous. It requires making the path from NDIS support to paid employment smoother, better supported, and – critically – not financially punishing. That is what the government's new specialist disability employment program, the revised NDIS participant employment strategy, and the broader reform agenda are attempting to do. Whether they succeed will matter as much to Australian employers scrambling for labour as it will to the participants the scheme exists to serve.
