Lecture 2 - Health and Wealth

Question 1

What were the 5 steps in the predicted impact of COVID? Hint: supply and demand curves

Answer 1

1) Supply shock: closure of retail, reduction in labour supply, disruption to supply chains
2) Contraction in demand: firms reduce spending, households can’t spend in closed retail, lower employment and loss of income leads to lower spending
3) Further contraction in supply: firms downsize or go bankrupt
4) Further reduces demand: people lose jobs
5) Large reduction in economic surplus = economic crisis

Question 2

What does Corr(Y,H)>0 mean?

Answer 2

Positive correlation between income (Y) and health (H)

Question 3

What are 3 facts that support that richer people enjoy better health? (wealth -> health)

At individual level

Answer 3

1) This holds no matter how income is measures (SES, occupation, etc)
2) This holds for different measures of health (survival, mortality etc)
3) Evident by gender, age group, country

Question 4

What are the 3 alternative arguments for the relationship between health and wealth (not wealth -> health)? And which is true?

At individual level

Answer 4

1) There could be other influences
2) There could be reverse causality
3) There could be a circular relationship (TRUE)

Question 5

What facts support that there could be other influences on the relationship between wealth and health?

At individual level

Answer 5

Educated -> better job -> more income -> better health

• poorer people tend to report worse health outcomes across all age groups
• less educated people report worse health outcomes across all age groups
• difficult to disentangle the inter-relationships between health, wealth, education and other characteristics
• higher income can improve mental health, but there is no correlation with physical health
• income shock studies

Question 6

What are the findings from income shock studies? (3 studies)

At individual level

Answer 6

• Positive psychological effects (Lindquist et al, 2020)
• Increases drinking and smoking (Apouey and Clarke, 2014)
• Some studies find no effect (Raschke, 2019)

Question 7

What facts support that there could be reverse causality between wealth and health? (health -> wealth)

At individual level

Answer 7

• healthier people are more likely to be promoted but getting promoted doesn’t seem to lead to improvements in health
• health shock studies

Question 8

What did health shock studies find? (3)

At individual level

Answer 8

• More likely to lose job (Garcia-Gomez, 2010)
• Larger impact for urban than rural households (Wagstaff, 2007)
• Poor health is a source of impoverishment (Alam and Mahal, 2014)

Question 9

Which has a greater impact; health on wealth or wealth on health?

At individual level

Answer 9

There is a circular relationship but health has a greater impact on income than income on health

Question 10

Income Elasticity of Demand Equation (YED)

Answer 10

YED = [(Q1-Q0)/(Q1+Q0)]/[(Y1-Y0)/(Y1+Y0)]

Q1 - quantity in current period
Q0 - quantity in previous period
Y1 - income in current period
Y0 - income in previous period

Question 11

What does Income Elasticity of Demand Measure?

Answer 11

How responsive we are to changes in income

Question 12

What do these mean?

YED > 1
0 < YED < 1
YED < 1

Answer 12

Normal Goods
YED > 1: luxuries
0 < YED < 1: necessities

YED < 1: inferior goods

Question 13

What does it mean to be an inferior good?

Answer 13

Spending rises as income falls e.g. bus, instant coffee

Question 14

What type of good is healthcare? Why?

Answer 14

Necessity good

As national income increases we spend more on health but not in proportion to how much our income has gone up

Question 15

What do Preston Curves Indicate?

Answer 15

• Indicates that individuals born in richer countries, on average, can expect to live longer than those born in poor countries.
• However, the link between income and life expectancy flattens out (logarithmic relationship)
• Over time the curve has shifted upwards indicating improvements in life expectancy other than those associated the increased national income

Question 16

What is the relationship between health and wealth at the national level? (2)

Answer 16

1) improvements in health (and education) have led to increases in national health
2) countries with healthier (and better educated) populations tend to be richer

Question 17

What was the predicted economic impact of COVID?

Answer 17

That countries which suffer more from COVID will also take a harder economic hit (because health tends to cause wealth)

Question 18

What was the relationship between wealth and health in the UK during COVID?

Answer 18

UK had the highest excess deaths and greatest Q2 GDP contraction in Europe

Very strict lockdown contributed to GDP hit

Question 19

Oliu-Barton et al, 2021

Answer 19

Countries which used elimination strategies to combat COVID, as the WHO recommended, had less deaths and less of a GDP hit

Question 20

Ma et al (2020)

Answer 20

• Studied GDP and employment in countries following 6 pandemics including H1N1
• Found that GDP bounced back 1 year after a pandemic but employment took 3 years
• Less educated and women were more likely to be unemployed
• Higher government spending, especially on healthcare, mitigates the economic hit from pandemics

Question 21

What are the unequal effects within countries related to COVID?

Answer 21

• differential exposure to lockdowns across sectors
• exacerbated educational and gender inequities
• government support (e.g. furlough) has reduced negative impacts

Question 22

What will lead economies to recover post-COVID?

Answer 22

Demand-led: release of pent-up customer spending

Bounce back will vary across countries