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Some adjustments to the human capital and the friction cost methods

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  • Antonis Targoutzidis

    (Hellenic Institute for Occupational Health and Safety (ELINYAE))

Abstract

The cost of lost output is a major component of the total cost of illness estimates, especially those for the cost of workplace accidents and diseases. The two main methods for estimating this output, namely the human capital and the friction cost method, lead to very different results, particularly for cases of long-term absence, which makes the choice of method a critical dilemma. Two hidden assumptions, one for each method, are identified in this paper: for human capital method, the assumption that had the accident not happened the individual would remain alive, healthy and employed until retirement, and for friction cost method, the assumption that any created vacancy is covered by an unemployed person. Relevant adjustments to compensate for their impact are proposed: (a) to depreciate the estimates of the human capital method for the risks of premature death, disability or unemployment and (b) to multiply the estimates of the friction cost method with the expected number of job shifts that will be caused by a disability. The impact of these adjustments on the final estimates is very important in terms of magnitude and can lead to better results for each method.

Suggested Citation

  • Antonis Targoutzidis, 2018. "Some adjustments to the human capital and the friction cost methods," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 19(9), pages 1225-1228, December.
    • Handle: RePEc:spr:eujhec:v:19:y:2018:i:9:d:10.1007_s10198-018-0969-z
    DOI: 10.1007/s10198-018-0969-z
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    References listed on IDEAS

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    1. Pissarides, Christopher A. & Wadsworth, Jonathan, 1994. "On-the-job search: Some empirical evidence from Britain," European Economic Review, Elsevier, vol. 38(2), pages 385-401, February.
    2. Carlo Gianelle & Giuseppe Tattara, 2014. "Vacancy chains and the business cycle. Stringing together job-to-job transitions in micro data," International Journal of Manpower, Emerald Group Publishing Limited, vol. 35(8), pages 1212-1235, October.
    3. Simonetta Longhi & Mark Taylor, 2014. "Employed and Unemployed Job Seekers and the Business Cycle," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(4), pages 463-483, August.
    4. Felsenstein, Daniel & Persky, Joseph & Carlson, Virginia, 2002. "Job vacancy chains in metropolitan labor markets," ERSA conference papers ersa02p088, European Regional Science Association.
    5. Johannesson, Magnus & Karlsson, Goran, 1997. "The friction cost method: A comment," Journal of Health Economics, Elsevier, vol. 16(2), pages 249-255, April.
    6. 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.
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    Cited by:

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    More about this item

    Keywords

    Cost of illness; Human capital; Friction cost; Vacancy chains;
    All these keywords.

    JEL classification:

    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • J39 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Other

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