Health capital is as valuable asset as human capital

Vijay K. Mathur

“Physical fitness is not only one of the most important keys to a healthy body, it is the basis of dynamic and creative intellectual activity.”

Robert F. Kennedy

Let me first clarify the word capital in the current context. Capital goods such as machines, tools and buildings are durable goods that last for some time in production. Specifically, physical capital is a produced means of production that increases productivity and profits to the employer for a period of time. It does require maintenance due to wear and tear, and it depreciates in value over a period of time. Financial capital is not a direct input in production, but it is used to produce physical capital.

Human capital is accumulated by investment just like physical capital, and once it is embodied in raw labor it increases labor’s productivity, thus producing rewards to the employer and employee over his/her lifetime. In addition, human capital in knowledge workers has spillover effects. In other words, an employee’s human capital not only benefits him or her in terms of high productivity and wage earnings but also benefits other employees who come into contact with the educated and knowledge employee. That is why “Silicon Valley” in California and “Silicon Slopes” in Utah attract knowledge workers. In the presence of spillovers of ideas and knowledge, workers self-interest would dictate under-investment in the acquisition of their education. Therefore, public financing of education is required to fill the gap.

Just like human and physical capital, heath capital is a durable good. Professor Michael Grossman, in the Journal of Political Economy, argues that health capital stock can be increased by investment, but increase in its price will reduce its quantity. This implies that disinvestment in health will decumulate health capital. Health is a multidimensional input embodied in raw labor and/or human capital. It not only increases productivity but also contributes to the person’s wellbeing and longevity.

A healthy labor force would be more productive than a labor force in poor health. Centers of Disease Control and Prevention (CDC), in 2016, found that stress is the leading cause of workplace health problems and the primary cause of occupational risk. Productivity loss from missed work costs employers $225.8 billion and $1,685 per employee per year. There is increasing evidence of job stressors contributing to depression. According to ibis.health.utah.gov, Utah had a greater age-adjusted depression in percentages of adults than the U.S. in all the years from 2011 to 2017.

Poor health not only reduces well-being and longevity of individuals, but it also costs the rest of society due to the loss in productivity and growth. It is well established that free choice of some in not preventing communicable diseases such as measles, mumps and rubela adversely affects others’ free choice of being free from these diseases.

Hence, in the presence of deleterious spillovers there is a need for public funding and regulation to prevent such diseases. A similar argument can be made for non-communicable poor health conditions. Poor health of workers affects productivity of individual workers and human capital, and it also adversely affects productivity of others in the workplace teams. Hence, investment in health capital by both private sector and government financing is needed to fill the gap in underinvestment in health capital by the private sector.

Ironically the state of Utah, concerned about growth, has been very reluctant to spend public funds to promote health capital, as evidenced by reduced funding for Medicaid. Health capital and human capital are complementary means of production. One cannot expect more productivity from human capital and its robust spillover effects without effective health capital.

Another line of research, reported by D. Almond, J. Currie and V. Duque in the Journal of Economic Literature in December 2018, further strengthens the case of partnership between public and private sector financing to promote health capital. This research on fetal origins hypothesis (FOH) basically establishes, for example, that parental nutritional deprivation, lack of medical care and lower income results in lower birth weight, chronic health conditions in adulthood and non-health outcomes such as low test scores, adults’ schooling attainment and wages.

Hopefully, decision makers in the private sector and governments recognize that more health capital not only benefits individuals but also society as a whole. Hence, health capital also deserves the same attention as human capital. We cannot succeed in reaping the fruits of increasing human capital without increasing health capital.

Mathur is former chairman and professor of economics, Department of Economics, Cleveland State University, Cleveland, Ohio.