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The Effect of Changes in Drug Utilization on Labor Supply and Per Capita Output

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  • Frank R. Lichtenberg

Abstract

We hypothesize that pharmaceutical-embodied technical progress increases per capita output via its effect on labor supply (the employment rate and hours worked per employed person). We examine the effect of changes in both the average quantity and average vintage (FDA approval year) of drugs consumed on labor supply, using longitudinal, condition-level data. The estimates indicate that conditions for which there were above-average increases in utilization of prescriptions during 1996-1998 tended to have above-average reductions in the probability of missed work days. The estimated value to employers of the reduction in missed work days appears to exceed the employer's increase in drug cost. The estimates are also consistent with the hypothesis that an increase in a condition's mean drug vintage reduces the probability that people with that condition will experience activity and work limitations, and reduces their average number of restricted-activity days. The estimates imply that activity limitations decline at the rate of about one percent per year of drug vintage, and that the rate of pharmaceutical-embodied technical progress with respect to activity limitations is about 18% per year. Estimates of the cost of the increase in drug vintage necessary to achieve reductions in activity limitations indicate that increases in drug vintage tend to be very 'cost-effective.'

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9139.

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Date of creation: Sep 2002
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Handle: RePEc:nbr:nberwo:9139

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  1. Plutarchos Sakellaris & Dan Wilson, 2000. "The Production-Side Approach to Estimating Embodied Technological Change," Electronic Working Papers 00-002, University of Maryland, Department of Economics.
  2. Frank R. Lichtenberg & Tomas J. Philipson, 2002. "The Dual Effects of Intellectual Property Regulations: Within- and Between-Patent Competition in the U.S. Pharmaceuticals Industry," Journal of Law and Economics, University of Chicago Press, vol. 45(S2), pages 643-672.
  3. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August.
  4. Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-80, September.
  5. Zvi Griliches & Frank R. Lichtenberg, 1984. "R&D and Productivity Growth at the Industry Level: Is There Still a Relationship?," NBER Chapters, in: R & D, Patents, and Productivity, pages 465-502 National Bureau of Economic Research, Inc.
  6. repec:umd:umdeco:sakellaris0002 is not listed on IDEAS
  7. Lichtenberg, Frank R, 1996. "Do (More and Better) Drugs Keep People Out of Hospitals?," American Economic Review, American Economic Association, vol. 86(2), pages 384-88, May.
  8. Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
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Cited by:
  1. Gautam Gowrisankaran & Robert J. Town, 2004. "Managed Care, Drug Benefits and Mortality: An Analysis of the Elderly," NBER Working Papers 10204, National Bureau of Economic Research, Inc.
  2. Hartwig, Jochen, 2010. "Is health capital formation good for long-term economic growth? - Panel Granger-causality evidence for OECD countries," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 314-325, March.

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