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Labor Market Costs of Illness: Prevalence Matters

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  • Thomas DeLeire
  • Willard Manning

Abstract

We present a model of the labor market effects of health impairments. In particular, we describe several economic models in which health affects worker productivity and the demand for and supply of market labor services. These models provide a framework for estimating the social cost of prevalent health impairments—a necessary step in conducting cost-benefit analyses and in determining the cost-effectiveness of potential health interventions from a broader social perspective. Our approach suggests that several measures used in the literature provide an incomplete and systematically biased assessment of the economic impact of health impairment or of the treatment of illness and impairment. The problem arises because of the reliance on an approximation at the firm level and from the bias from the neglect of the effect of impairment in shifting the labor market equilibrium. If the illness is prevalent, the effects on labor market equilibrium wage rates could be substantial. In addition, many analyses also ignore the effects of illness on producers’ surplus.

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Bibliographic Info

Paper provided by Harris School of Public Policy Studies, University of Chicago in its series Working Papers with number 0314.

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Date of creation: Sep 2003
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Handle: RePEc:har:wpaper:0314

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Keywords: illness; cost-benefit; productivity;

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References

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  1. Susan L. Ettner & Richard G. Frank & Ronald C. Kessler, 1997. "The Impact of Psychiatric Disorders on Labor Market Outcomes," NBER Working Papers 5989, National Bureau of Economic Research, Inc.
  2. Werner B. F. Brouwer & Marc A. Koopmanschap & Frans F. H. Rutten, 1997. "Productivity Costs Measurement Through Quality of Life? A Response to the Recommendation of the Washington Panel," Health Economics, John Wiley & Sons, Ltd., vol. 6(3), pages 253-259.
  3. Koopmanschap, Marc A. & Rutten, Frans F. H. & van Ineveld, B. Martin & van Roijen, Leona, 1995. "The friction cost method for measuring indirect costs of disease," Journal of Health Economics, Elsevier, vol. 14(2), pages 171-189, June.
  4. Janet Currie & Brigitte C. Madrian, 1998. "Health, Health Insurance and the Labor Market," JCPR Working Papers 27, Northwestern University/University of Chicago Joint Center for Poverty Research.
  5. Sandy, Robert & Elliott, Robert F, 1996. "Unions and Risk: Their Impact on the Level of Compensation for Fatal Risk," Economica, London School of Economics and Political Science, vol. 63(250), pages 291-309, May.
  6. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
  7. Jonathan Gruber, 1998. "Health Insurance and the Labor Market," NBER Working Papers 6762, National Bureau of Economic Research, Inc.
  8. Mark V. Pauly & Sean Nicholson & Judy Xu & Dan Polsky & Patricia M. Danzon & James F. Murray & Marc L. Berger, 2002. "A general model of the impact of absenteeism on employers and employees," Health Economics, John Wiley & Sons, Ltd., vol. 11(3), pages 221-231.
  9. Gruber, Jonathan, 2000. "Health insurance and the labor market," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 12, pages 645-706 Elsevier.
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Cited by:
  1. D Andren & E Palmer, 2008. "The Effect of Sickness History on Earnings in Sweden," Economic Issues Journal Articles, Economic Issues, vol. 13(1), pages 1-24, March.
  2. Ebere Akobundu & Jing Ju & Lisa Blatt & C. Mullins, 2006. "Cost-of-Illness Studies," PharmacoEconomics, Springer, vol. 24(9), pages 869-890, September.
  3. Andrén, Daniela & Palmer, Edward, 2004. "The Effect of Past Sickness on Current Earnings in Sweden," Working Papers in Economics 138, University of Gothenburg, Department of Economics.

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