Adjusting Measures of Economic Output for Health: Is the Business Cycle Countercyclical?
AbstractMany national accounts of economic output and prosperity, such as gross domestic product (GDP) or net domestic product (NDP), offer an incomplete picture by ignoring, for example, the value of leisure, home production, and the value of health. Discussed shortcomings have focused on how unobserved dimensions affect GDP levels but not their cyclicality, which affects the measurement of the business cycle. This paper proposes new measures of the business cycle that incorporate monetized changes in health of the population. In particular, we incorporate in GDP the dollar value of mortality, treating it as depreciation in human capital analogous to how NDP measures treat depreciation of physical capital. We examine the macroeconomic fluctuations in the United States and globally during the past 50 years, taking into account how depreciation in health affects the cycle. Because mortality tends to be pro‐cyclical, fluctuations in standard GDP measures are offset by monetized changes in health; booms are not as valuable as traditionally measured because of increased mortality, and recessions are not as bad because of reduced mortality. Consequently, we find that U.S. business cycle fluctuations appear milder than commonly measured and may even be reversed for more than one third of “recessions” after accounting for the cyclicality of health. We find that adjusting for mortality reduces the measured U.S. business cycle volatility during the past 50 years by about 30% both in the United States and internationally. We discuss future research directions for more fully incorporating the cyclicality of unobserved health capital into standard output measurement.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19058.
Date of creation: May 2013
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Find related papers by JEL classification:
- E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
- I1 - Health, Education, and Welfare - - Health
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-24 (All new papers)
- NEP-BEC-2013-05-24 (Business Economics)
- NEP-HEA-2013-05-24 (Health Economics)
- NEP-MAC-2013-05-24 (Macroeconomics)
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- Urbanos-Garrido, Rosa M. & Gonzalez Lopez-Valcarcel, Beatriz, 2013. "Desempleo y salud: Un análisis de la repercusión de la crisis económica sobre la salud de los españoles/Unemployment and Health: An Analysis of the Impact of the Economic Crisis on the Health of t," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 31, pages 303-326, Septiembr.
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