Economy

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Can Health Care Reform Save the Economy?

March 27, 2009 in Economics - General, Health Insurance | 5 comments

In the run-up of real estate and stock market prices, demand for labor in the construction, real estate, finance industry was high.  With the drastic drop in real estate and stock market prices, the demand for loan officers, construction workers and investment bankers has dropped.  Individuals who have been laid must find a new job.  Those who are currently in dead-end jobs need to find positions in growing industries and cities.  For instance, a construction worker who used to build McMansions in the suburbs should be looking to move to new area where jobs are available working on government infrastructure projects.

Nevertheless, many employees in dead-end jobs may decide to try to keep these jobs.  Why?  One reason workers keep jobs they do not like is that they do not want to lose health insurance coverage for their family.  Moving to a new city can mean a temporary lapse of health insurance.  Further, new employers often do provide health insurance for a few months.  

The phenomenon that workers remain at sub-optimal jobs to maintain their health insurance is known as “job lock.”  I wrote a brief literature review about job lock 3 years ago.

A recent Economist article has revisited the problem of job lock as well:  

“…most Americans still get their health insurance from their jobs.  This makes it hard for anyone with a sick child to quit and start a new firm. It also makes it harder to switch jobs, despite a law helping employees to stay in company plans for 18 months after they leave. Scott Adams of the University of Wisconsin-Milwaukee found that married men with no alternative source of insurance were 22% less likely to switch jobs than those who, for example, could get covered by their wife’s employer.

Tying health care to a job can tie people to jobs they hate. Gerry Stover, who now runs a doctors’ group in West Virginia, recalls a time when his wife was pregnant and he couldn’t get health insurance at a private firm. He became a prison guard. As a public employee, his family was covered. But the job was neither pleasant nor a good use of his talents.”

While employer-provided health insurance is a good place to pool individuals of different health risks, tying health insurance to your employer may impede labor mobility and slow economic growth.

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Health care sector adds jobs?

December 8, 2008 in Economics - General | 2 comments

Merrill Goozer reports that “While the rest of the economy was shedding nearly 600,000 jobs and the nation’s once-proud automobile industry went begging for a bailout,” the health care sector actually added 52,100 jobs last month.

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Bad economy may be good for your health

October 8, 2008 in Economics - General | Permalink

While your wallet may be a little lighter and your 401(k) may have taken a beating, the economic downturn may actually improve your health.

The N.Y. Times reports that “people tend not to take care of themselves in boom times — drinking too much (especially before driving), dining on fat-laden restaurant meals and skipping exercise and doctors’ appointments because of work-related time commitments.”

When the economy slows, individuals don’t work as hard which reduces stress.  Also, people have more time to spend with their family.  Economic slowdowns often mean less driving, which will significantly reduce the number of motor vehicle accidents.  I have also read some paper where economic slowdowns reduce pollution and thus decrease mortality rates.

“In May 2000, the Quarterly Journal of Economics published a surprising paper called “Are Recessions Good for Your Health?” by Christopher J. Ruhm…Dr. Ruhm found that death rates declined sharply in the 1974 and 1982 recessions, and increased in the economic recovery of the 1980s. An increase of one percentage point in state unemployment rates correlated with a 0.5 percentage point decline in the death rate — or about 5 fewer deaths per 100,000 people.”

One clear caveat must be noted however.  While cyclical downturns may be good for an individual’s health, “It’s clear that long-term economic gains lead to improvements in a population’s overall health.”

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The Economy and a “Disease-led Recovery”

July 3, 2008 in Economics - General | Permalink

Jonathan Rowe’s essay (“Our Phony Economy“) in the June edition of Harper’s Magazine criticizes the blind use of GDP as the only measure of the economy. GDP by definition looks at the total quantity of good produced in a given year. Rowe wisely notes that solely relying on GDP can omit some important aspects which effect the economy. For instance, using more gas and oil increases economic activity, but polluting the air does not count as reduced economic activity. If we our society becomes more unsafe and businesses must hire security guards and electronic security systems, this shows up as an increase in GDP whereas most people would believe that have a more unsafe society constitutes a reduction in welfare.

Activities such as parental child care are not counted in the economy while private day care does count as economic activity. When measuring gasoline production, GDP should take into account that gasoline production increases economic activity on the one hand, but also reduces fossil fuel levels as well. Rowe notes that some economic activity may include economic ‘bads’ such as drug abuse or fraud.

Finally, a disease outbreak where a city would have to hire more doctors, nurses, and medical staff would be considered an increases in economic activity. However, no economist would advocate that a “disease-led recovery” would be the best way to improve welfare. What matters to individuals is their health level, not how much they spend on medical care.

What Rowe does not do is offer better alternatives. The reason that pollution, safety, and fossil fuel extraction are not counted in GDP now is that they are very difficult to measure. What is the cost of releasing x amount of pollution into the air? How much do people value safety? In order to figure out how much the extraction of fossil fuels costs, we need to have some idea of how much fossil fuels are currently in the ground (which we don’t really know).

Doctors have a very difficult time determining health levels so how would statisticians be able to come up with some health-related economic indicator. With respect to economic “bads” like drug abuse, who should be the one determining what is an economic “good” and what is an economic “bad.” Drunk driving is certainly not a productive activity, but having a glass of beer or wine with your dinner certainly adds to the welfare of many people.

Thus, Rowe’s wisely notes that GDP does not provide an exact measure of social welfare. Nevertheless, until someone comes up with a better statistical tool, GDP will be the rough instrument with which most analysts, media, researchers and the public will use to measure economic activity.

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