Elsevier

Social Science & Medicine

Volume 72, Issue 2, January 2011, Pages 185-192
Social Science & Medicine

Measuring and valuing productivity loss due to poor health: A critical review

https://doi.org/10.1016/j.socscimed.2010.10.026Get rights and content

Abstract

The objective of this study is to review current measurement issues and valuation methods such as “human capital” and “friction cost” for estimating productivity loss due to illness. Since observed wages diverge from marginal productivity when allowances are made for sick days and workers are risk averse, or when a job type involves team production, unavailability of perfect substitutes, and/or time-sensitivity of output, productivity loss is likely to be underestimated. A multiplier adjusting wage to marginal productivity needs to be developed for practical use. We further consider the ramifications of measuring labour input loss due to illness in both paid and unpaid work as well as the inclusion of presenteeism to the more traditional approach of measuring only absenteeism. Although a number of instruments have been developed to measure presenteeism, they generate widely varying estimates of productivity loss. Further investigation is required to identify which instrument provides a better estimate. Finally, we provide recommendations on measurement methods such as using subjective measures due to the unavailability of objective measures and the appropriate recall periods. We conclude by proposing a generic measure instead of a disease-specific measure and discuss important perspective related issues.

Research highlights

► Lost productivity due to illness is substantial and should be appropriately measured and valued. ► Existing instruments generate widely varying estimates of productivity loss. ► We review the current methods of valuing productivity loss. ► We highlight issues and controversies related to the measurement and valuation of productivity loss. ► We suggest methodological guidelines to align economic theory with valuation approaches for productivity loss.

Introduction

Recently, there has been a marked increase in the number of published papers that focus on estimating the economic burden of illness especially chronic illness. In most instances, these newer studies are different from their predecessors because of the inclusion of the indirect costs of the disease (Anis et al., 2010, Health Canada, 2002, Health Canada, 2003, Li et al., 2006). Indirect costs are now widely referred to as productivity losses (Drummond et al., 2005, Gold et al., 1996). In addition to estimating the economic burden of illness, cost-effectiveness studies also include indirect costs albeit as a sensitivity analysis according to the recommendations of most national pharmacoeconomic guidelines (Canadian Agency for Drugs and Technologies in Health, 2006, National Collaborating Centre for Chronic Conditions, 2009, National Institute for Clinical Excellence, 2001, Ontario Ministry of Health and Long-Term Care, 1994). However, there is considerable skepticism about considering indirect costs. Their inclusion in economic evaluations is viewed as a tactic to improve the cost-effectiveness of interventions from a societal perspective. Some are of the opinion that their inclusion in cost-effectiveness analysis results in double counting while others raise concerns over the issues of equity, perspective and valuation methods, etc to argue against the inclusion of indirect costs in economic evaluations. (Drummond et al., 2005, Gold et al., 1996, Sculpher, 2001).

In order to address the issues, health economists have made recommendations on how to report productivity loss in economic evaluations. For example, to avoid double counting, it was suggested to ask individuals to assume no health care costs or income loss as a result of illness while assessing the value of improved health (Drummond et al., 2005, Johannesson et al., 2009, Pritchard and Sculpher, 2000). To balance efficiency with equity, productivity loss should be first expressed in quantities such as the number of lost days or hours of work and then valued as a monetary amount using more equitable estimates such as a general wage rate (Drummond et al., 2005, Pritchard and Sculpher, 2000).

Although a societal perspective is preferred for economic evaluations, different perspectives, especially a health care budget perspective, are often adopted (Drummond et al., 2005, Gold et al., 1996, Johannesson et al., 2009, Jonsson, 2009). Jonsson (2009) provided ten arguments for taking a broad societal perspective on value, specifically to include all relevant costs including productivity loss. Therefore, productivity loss should be presented separately from health care costs to give the decision makers explicit information about the impact of different assumptions on the result (Drummond et al., 2005, Johannesson et al., 2009, Pritchard and Sculpher, 2000).

Despite of the recommendations on reporting productivity loss, there is still a lack of detailed methodological guidance on how productivity loss should be measured and valued. In this paper we introduce the concept of productivity and distinguish between labour as an input and its productivity impact on the final output of the firm. We first review current valuation methods of productivity loss and the related issues. Then, we consider the ramifications of loss in both paid and unpaid work productivity and address current controversies with regard to the measurement of productivity loss. We do not attempt to address the current issues with regard to inclusion/exclusion of productivity loss in economic evaluations. Instead, in this paper, we focus on measuring and valuing productivity loss as a result of morbidity. We believe that productivity loss should first be measured as comprehensively as possible and then be included/excluded according to the needs of the decision makers.

Section snippets

Productivity and productivity loss

According to neoclassical economic theory, the concept of productivity is based on the production function, where output is a function of capital input, labour input and technology allowing for substitution between different types of inputs. Productivity is a measure of output per unit of input (Organisation for Economic Co-operation and Development, 2001). Labour input reflects the quantity (e.g., time) and quality (e.g., effort and skills) of the work force. In the context of this paper,

Valuation of productivity loss: paid work

According to the above definition of productivity loss, to value productivity loss is to value the output loss. There are two main valuation methods for productivity loss among the employed. The human capital (HC) approach treats human beings as assets and values life and health as lost production to the economy (Berger et al., 2001, Johannesson, 1996). It assumes that the value to society of productivity loss should be measured as the present value of lost time according to the market wage,

Valuation of productivity loss: unpaid work

Innovations have been made in the application of the HC approach to impute value, shadow prices, for unpaid work activities such as household work, shopping, and childcare (Drummond et al., 2005). The loss of ability to do these unpaid work activities needs to be evaluated within the context of overall output changes at the societal level. There are two main methods valuing unpaid work productivity loss (Drummond et al., 2005). Opportunity costs of the lost time spent on unpaid work activities

Components of labour input loss

In order to value paid work productivity loss, we need measure the effective amount of labour input loss to value the corresponding output loss. To capture the net impact of reduced labour input due to illness, a distinction is made between labour input loss due to presenteeism, absenteeism and employment status changes including reducing routine working time, job loss, and early retirement. Presenteeism refers to the reduced intensity and/or quality of labour input due to health problems while

Compensation mechanisms

Health economists have paid attention to the existence of compensation mechanisms in workplaces and suggested that the consideration of compensation mechanisms could potentially reduce productivity loss (Brouwer et al., 2002, Jacob-Tacken et al., 2005, Pauly et al., 2002, Severens et al., 1998). Jacob-Tacken et al. (2005) and Severens et al. (1998) found that about 70–75% of productivity loss was reduced after adjusting for compensation mechanisms by assuming that there was no productivity loss

Objective versus subjective measures

Objective measures of productivity loss usually come from the workplaces of the study subjects, for example, registry data kept by a firm for sick leave. However, objective measures are not always available for presenteeism. Productivity indicators can vary according to occupation as well as workplaces. Some jobs may even have more than one productivity measure and some jobs such as knowledge-based occupations may produce no easily quantifiable output (Mattke et al., 2007, Prasad et al., 2004).

Conclusions

In the literature, a recent review on this topic already exists. Mattke et al. (2007) reviewed the instruments for measuring the effect of ill health on productivity because of absenteeism and presenteeism, and summarized 3 different methods of measuring presenteeism as well as 3 methods for monetizing lost productivity. Our review paper was based on the economic theory underlying production, i.e., the concept of the production function and the associated concept of productivity. We highlighted

Acknowledgments

Wei Zhang is funded by the Canadian Institutes of Health Research (Doctoral Research Award in the Area of Public Health Research) and the Canadian Arthritis Network (Graduate Award). We also acknowledge the reviewers’ comments, which greatly improved the manuscript.

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