The IdeaThe value of new drugs through increased workforce productivity is far greater than their cost.
Frank Lichtenberg studied how the introduction of new drugs affects productivity in the U.S. economy. Most previous research on this subject took the form of case studies using very small samples of individuals with the same condition at the same time. This study was the first to use a large sample, many drugs and a long horizon: 200,000 individuals with 47 major chronic conditions over the period 1982 to 1996. Previous studies examined the effects of a single drug, comparing people with one condition taking the drug to people with the same condition who did not take the drug. By contrast, this study compared people with conditions for which many new drugs were introduced to people with conditions for which there were not many new drugs. The research method assessed how much new drugs increased the number of hours worked per member of the working-age population, controlling for other economic factors that affect health, such as changes in the unemployment rate.
The results showed that new drugs increased the ability to work by more than three days per year, with a value of $415 per employee per year. The average expenditure on developing the drugs was $51 per person. This means that the value of the workdays saved amounted to more than eight times the cost of the drugs. But other health innovations might have aided the specific drugs in lowering workdays lost: because drug development amounts to 28 percent of the total for developing all medical innovations, a more conservative estimate would be a savings of $116 per employee per year ($415 x .28). That figure is still far greater than the $51-per-person cost of developing the drugs.
Health care insurers and policymakers
For insurers, this research offers you a method for assessing the productivity benefits of specific drugs for the design of drug reimbursement policies. For policymakers, by showing you how the pharmaceutical industry benefits other industries by increasing worker productivity, this research has important implications for economic development policies.
Frank R. Lichtenberg is Courtney C. Brown Professor of Business at the Columbia University Graduate School of Business; a Research Associate of the National Bureau of Economic Research; and a member of the CESifo Research Network. He received a BA with Honors in History from the University of Chicago and an MA and PhD in Economics from the University of Pennsylvania.
Mr. Lichtenberg previously...
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"Availability of New Drugs and Americans' Ability to Work"