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

Tanguy Le Fur () and Alain Trannoy ()
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Tanguy Le Fur: University of Lille, CNRS, IESEG School of Management, UMR 9221 - LEM - Lille Economie Management
Alain Trannoy: Aix-Marseille University, CNRS, EHESS, AMSE

Journal of Population Economics, 2024, vol. 37, issue 4, No 8, 32 pages

Abstract: Abstract 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.

Keywords: Working time; Health capital; Health expenditure; Health-maximizing level of labor supply; American health puzzle (search for similar items in EconPapers)
JEL-codes: I1 J22 O41 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00148-024-01051-6

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