The health-maximizing level of labor supply: a macroeconomic perspective on the American Health Puzzle

This paper provides a macroeconomic explanation for the United States suffering from a health disadvantage relative to other rich European countries despite spending much more on health care. We introduce health capital à la Grossman in the neoclassical growth model and assume that its rate of depre...

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Bibliographic Details
Published in:Journal of population economics 2024-12, Vol.37 (4), p.73, Article 73
Main Authors: Le Fur, Tanguy, Trannoy, Alain
Format: Article
Language:English
Subjects:
Capital stock
Consumption
Economics and Finance
GDP
Gross Domestic Product
Growth models
Health care expenditures
Humanities and Social Sciences
Investments
Labor
Labor supply
Leisure
Life expectancy
Macroeconomics
Maximization
Optimization
Steady state models
Working hours
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Summary:This paper provides a macroeconomic explanation for the United States suffering from a health disadvantage relative to other rich European countries despite spending much more on health care. We introduce health capital à la Grossman in the neoclassical growth model and assume that its rate of depreciation increases with labor supply. The steady-state share of GDP devoted to health expenditure increases with labor supply, but the relationship between the health capital stock and the number of hours worked is hump-shaped, meaning that there is a country-specific health-maximizing level. We calibrate the model to the United States and assess how much of this “American Health Puzzle” can be explained by the greater number of hours Americans work. Higher labor supply in the US accounts for 2 to 3 percentage points in extra health expenditure as a share of GDP and between 10% and one-third of the American health disadvantage.
ISSN:0933-1433
1432-1475
DOI:10.1007/s00148-024-01051-6