The labor share and life expectancy in the U.S.: Suffering from Baumol’s cost disease

Life expectancy in the United States has been growing at a slower rate, both in absolute terms and relative to other high-income countries. We argue that this trend can be explained in part by the declining share of income accruing to workers. A falling labor share of income implies productivity growth that outpaces wage growth, reducing workers’ ability to afford the costs of services such as healthcare and education. These services are beneficial for health but increase in cost with productivity growth due to Baumol’s cost disease. We examine these relationships in two ways: time series analysis at the national level and state-level panel regressions. We find that the labor share has a positive effect on the growth rate of life expectancy and that healthcare utilization and education mediate this relationship. Policies that increase the labor share or otherwise make essential services more affordable are needed to improve health.