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The costs of diabetes among Australians aged 45–64 years from 2015 to 2030: projections of lost productive life years (PLYs), lost personal income, lost taxation revenue, extra welfare payments and lost gross domestic product from Health&WealthMOD2030
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  • Published on:
    Authors' Response to Comment by Peter A West
    • Deborah Schofield, Academic University of Sydney
    • Other Contributors:
      • Rupendra Shrestha, Academic
      • Michelle Cunich, Academic
      • Megan Passey, Academic
      • Lennert Veerman, Academic
      • Robert Tanton, Academic
      • Simon Kelly, Academic

    Peter A West wrote a letter primarily suggesting the use of friction cost method to evaluate the economic impacts of lost PLYs because of diabetes in our paper.
    There is an ongoing debate on which of the two methods (human capital approach or friction cost) is the best method for measuring the economic evaluation of lost productivity. The human capital approach counts any time out of the labour force due to ill health as lost labour productivity because of the reduced work capacity of the individual, whereas the friction cost method takes the employer’s perspective and only counts a portion of the time until a new employee can be hired to take over the job, including undertaking any training required, of the individual who was no longer able to work, with a friction period being typically up to 3 months. We chose to use the human capital approach in our paper for several reasons:
    1. Australia has one of the lowest unemployment rates, currently around 5.7%, among the OECD nations (https://data.oecd.org/australia.htm).
    2. There are numerous areas of the workforce in severe shortage in Australia, making it harder to replace a worker when they leave, let alone an experienced 45-64 years age group worker (https://www.employment.gov.au/occupational-skill-shortages-information).
    3. Finally, Australia has significant barrier...

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    Conflict of Interest:
    None declared.
  • Published on:
    Counting the right costs of diabetes

    So far as I can see, (and apologies if I have missed something) in common with many others, the authors have failed to include the effect on GDP and taxes and welfare payments of replacement of sick workers by healthy unemployed workers and new workers entering the labour market. Similarly, if unemployed workers take jobs from those with diabetes no longer able to work, then their unemployment benefits will end and there will be a saving in welfare payments to the economy. The tax paid by those now working will offset the tax lost from those ceasing work.

    Overall, the level of GDP in developed countries is more likely to be determined by the levels of domestic demand, world trading conditions, currency exchange rates etc. than by the availability of a relatively small number of workers with diabetes, if their employment could be continued.

    Welfare payments and taxes are also conventionally treated in economics as transfer payments which have no overall effect on goods and services. If anything, additional welfare payments may benefit the economy in the short run as poorer people on benefits have a higher propensity to spend than richer tax payers. It is usually not acceptable to add direct resource costs for treatment to transfer payments.

    I suggest the authors look at this again and at least include the potential effects of worker replacement, given the current levels of unemployment in Australia. They should examine the literature on the friction c...

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    Conflict of Interest:
    None declared.