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• Macroeconomics of Mental Health
• CORE Week

Transcript

Tim Sablik: My guest today is Job Boerma, an assistant professor of economics at the University of Wisconsin-Madison. Thank you for joining me.

Job Boerma: Thank you so much. It's a pleasure to be here.

Sablik: You're here at the Richmond Fed this week presenting a very interesting paper as part of CORE Week, a gathering of visiting scholars and Fed economists that our Research Department hosts seven to eight times a year. I'm glad you could carve out some time to join me here to discuss your paper, which is titled "Macroeconomics of Mental Health."

When I saw the title of this paper on the presentation schedule, it immediately caught my eye. Mental health isn't something I usually think of as economists studying. What drew you and your co-authors to this topic?

Boerma: Our starting point for this research agenda was simply the prevalence of mental health problems in the United States. If you look at any given point in time, about 20 percent of the U.S. population experiences mental health problems and five percent of the U.S. population experiences severe mental health problems, by which we mean that the mental health problems interfere with their daily activities.

We also knew from prior work that mental illness is associated with adverse socioeconomic outcomes. What we wanted to know as macroeconomists was, well, what are the macroeconomic consequences of mental illness and what policies could be potential remedies to the mental health problem.

Sablik: In your paper, you and your co-authors create a model for how poor mental health affects individuals. What are the key components of that model?

Boerma: Before listing the key components of mental health, let me first explain how we get there.

When thinking about mental health from the perspective of economics, there is already a psychiatric literature that has been studying mental health problems for decades. Let's first turn to them and read through their literature and see what are the main features of mental illness that they highlight. So, what we did the first 18 months of working on this project was simply go through the psychiatric literature and distill the key pieces of information that they provide. We did a first year of a bachelor's studies, I would say, or master's study.

The psychiatric literature emphasizes three key features of mental illness. The first key feature, which is based on the work of Aaron Beck, is that mental health is primarily a cognitive disorder characterized by negative thinking. The predominant view of psychiatrists is that depressed individuals hold negative views of themselves, of the future, and of the past. This is not only a key part of depression, but also the main feature of PTSD, anxiety, and psychosis.

A second key feature, which builds on the work of Nolen-Hoeksema, is rumination. Rumination is this uncontrollable and repetitive preoccupation with one's negative thoughts. When individuals are experiencing mental illness, they spend extensive amounts of time ruminating.

The third key feature that the psychiatric literature highlights is reinforcement through behavior. Individuals that are experiencing mental health problems do not take actions that alleviate their problems. Instead, their actions tend to reinforce their ailment.

To give an illustration of how this may work, think of negative thinking. If you think negatively about the world, you may also think negatively about the benefits of treatment. So, when you decide whether to undergo treatment or not, you're more likely not to undertake treatment which in turn sustains your mental health.

What we then did is we took a step back. We saw these three key features and then we thought, "How do we embed these key features in the standard economic framework to talk about the macroeconomic consequences of mental health?"

Sablik: I would imagine that a lot of the research on mental illness, particularly on the psychiatric and mental health side, is focused on health consequences for individuals. But, as you mentioned, you're looking at this as macroeconomists, so your paper tries to quantify the economic costs of mental illness. How can poor mental health impact individuals economically?

Boerma: What we show in this paper is that an individual's mental health affects their consumption behavior, their savings behavior, their portfolio choices, as well as their individual labor supply. In turn, this affects variables such as aggregate consumption and the country's aggregate labor supply. This is how we get to the enormous annual cost of mental health problems.

To establish this relationship between mental health and economic outcomes such as consumption, savings and portfolio choices, we turn to micro data on these individual choices. This is where we establish a number of interesting facts. First, we establish that individuals who are experiencing mental illness think more negatively. Second, we find that individuals who are experiencing mental illness tend to consume less, invest more in less risky assets such as bonds, and they invest less in risky assets such as stocks and housing. This is after we condition on all other variables, such as income, household composition, and wealth.

For example, we find that individuals who are experiencing mild mental illness allocate three percent less of their wealth to risky assets. Individuals who are experiencing serious illness invest, on average, five to six percent less in risky assets. The explanation for this is that, due to negative thinking, they think more negatively about, say, stock market returns or return on risky variables. As a result, they allocate more of their wealth to safer assets and less to these risky assets, of whom they expect the returns to be low.

Sablik: Yeah, very interesting.

Now turning to the macro lens, what is the aggregate effect of poor mental health across the whole economy? And then, how do your findings there compare to any other studies of these effects?

Boerma: We estimate that mental illness costs the U.S. economy about $154 billion each year. This estimate amounts to about 1.2 percent of the country's aggregate consumption in a given year. Within macroeconomics, this number is a first estimate of the aggregate cost of mental health problems.

Epidemiological literature has also provided estimates of the cost of mental illness. They focus mainly on the income loss related to mental illness and the cost of mental health treatment. Using our more model-based approach, we also account for a host of additional adverse economic outcomes. As a result of incorporating these additional ingredients, we find an estimate that's 24 percent larger than those found in the epidemiological studies.

Sablik: As you mentioned earlier, you and your co-authors also looked at potential treatments or policies for improving mental health in the U.S. What did you find there?

Boerma: Given that we estimate these large aggregate effects of mental health to the U.S. economy, a natural question to ask is, "What policies would be most promising in terms of reducing these aggregate costs of mental illness?" So, what we do in the paper is we evaluate two prominent policies that have been discussed in several states and also at the nationwide level, which are expanding the availability of mental health treatment services and lowering the out-of-pocket costs.

Lack of availability of mental health treatment services is one of the most commonly cited barriers to treatment. According to the U.S. Department of Health, about 165 million Americans live in Health Professional Shortage Areas. In these areas, on average, only 27 percent of the required capacity of mental health professionals is present. This means that about one third of Americans do not have access to mental health treatment.

Given this shortage, policymakers are considering policies to expand the availability of treatment services, for example, through the training of more mental health professionals. What we find, using our economic model, is that expanding the availability of mental health treatment services strongly reduces mental illness and gives an aggregate welfare gain of about 4.4 percent of aggregate consumption, or about $41 billion annually.

Sablik: Overall, based on your findings, do you think that mental health is an understudied topic in economics?

Boerma: Yes, absolutely. Some researchers have studied the impact of adverse events on mental health and of mental illness on things like human capital or knowledge capital and labor market outcomes. But this work on the aggregate economic consequences of mental health is still scarce. Our hope is that the framework that we develop will encourage other economists to study how mental health impacts economic growth, inequality, and business cycle dynamics.

Sablik: Are you and your co-authors planning to expand on this research yourself?

Boerma: Yes, our plan is to continue developing this agenda in the years to come. There are many open questions that we hope to address using our framework. Questions that we're currently thinking about and discussing are, "How do mental health problems of parents affect the economic trajectories of their children? How do aggregate economic episodes such as booms and recessions or the COVID-19 pandemic impact individuals mental health and their economic lives?"

Sablik: Job, thank you so much for joining me today.