The Impact of Health on Productivity: Empirical Evidence and Policy Implications

Improving the living standards of populations is a widespread societal objective. A cornerstone of living standards is the ability of individuals to earn wages and profits in order to purchase goods and services for consumption. In turn, wages and profits reflect the value of the goods and services produced in an economy and the productivity of the factor inputs used to produce them. Though living standards, income and productivity are distinct concepts, the three are very much related. The correlation between labour productivity and real wages both across countries and over time is quite high, indicating the importance of productivity growth rates for the improvement of a country’s living standards (Harris 1999). Consequently, economists and historians have focused much attention on better understanding the determinants of productivity growth. There is increasing awareness that human capital is a key factor. Traditionally, human capital has been interpreted as education and skills. Recently, however, increasing attention has been given to health as a form of human capital. Over the last few years a growing body of literature has developed on the macroeconomic and microeconomic relationship between health and productivity. This chapter reviews the theoretical underpinnings and empirical evidence of this relationship. In particular, it addresses the question: Would an improvement in the health status of working Canadians pay off in terms of higher aggregate productivity? The evidence presented comes from many countries, both developed and developing, and spans a period of over 200 years. The review focuses on implications for public policy and firm-level practices in developed countries, particularly Canada. Figure 1 provides an organizing framework for this review. It lists a number of strategies that the public and private sectors have employed to promote the health of individuals and populations, as well as several measures of health to assess the effectiveness of these strategies. Some of the strategies are employed with the express intention of improving human capital and, in turn, productivity. Others have improving health as a specific goal. The more traditional strategies of sanitation, nutrition and education are T H E R E V IE W O F E C O N O M IC P E R F O R M A N C E A N D S O C IA L P R O G R E S S | 2 0 0 2 The Impact of Health on Productivity: Empirical Evidence and Policy Implications