The Labour Market Impact of Health Taxes

Health taxes are used worldwide to reduce unhealthy consumption of specified products. However, policymakers can be hesitant to introduce or increase health taxes due to claims from industry of negative labour impacts and economic downturn, particularly in lower-income contexts. We provide an in-depth synthesis of the global literature to evaluate these claims across the labour market spectrum. We ground the evidence around a comprehensive conceptual framework and describe the foundation from which labour market characteristics drive direct and indirect industry employment and how health taxes interact with these features. We draw on empirical and modelled evidence to critically illustrate the labour impact outcomes of these interactions across the affected sectors. We first focus on employment impacts of health taxes, describing limitations inherent in these study methodologies. Next, we explore productivity impacts of health taxes including the losses and costs incurred from consumption of the taxed products and productivity gains from pricing policies aimed to reduce consumption of unhealthful products. The evidence suggests that affected industries can expect job losses from reduced consumption, and the economy will incur transient restructuring costs; however, consumer spending on other goods and services and spending of increased government tax revenue drives a sectoral shift resulting in either minimal, neutral job losses or even gains. Furthermore, the implementation of health taxes can help reverse the indirect costs to an economy from productivity losses attributable to morbidity and mortality from consumption of targeted products. It should be noted that most of the labour impacts of health taxes evidence were from industry-reported studies, which utilised inappropriate methodology showing partial, gross impacts, while the more robust studies provide no evidence of significant negative labour impacts. Further evaluations should include the potential unintended consequences of health taxes including labour market impacts.