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Working paper

The Cost of Ill Health (WP 10/04)

Issue date: 
Tuesday, 16 November 2010
View point: 
Publication category: 
JEL classification: 
I10 - Health: General
J22 - Time Allocation and Labor Supply

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This paper aims to quantify some of the costs associated with ill health in New Zealand.


This paper aims to quantify some of the costs associated with ill health in New Zealand. The main focus is in estimating indirect costs as opposed to direct health care expenditure costs. In particular, it estimates the cost of absenteeism, presenteeism, working less and not working at all owing to ill health. Around 1,196,200 working age, non-students are estimated to contribute to one or more of the components of indirect costs estimated. That is 61.8% of all working age, non-students. Evaluated at the average full-time pay rate, the estimated hours lost equate to $4.127 billion to $11.563 billion in 2004/05; 2.7% to 7.6% of Gross Domestic Product (GDP). The considerable range in the cost estimate is owing to the large range of the presenteeism estimate as a result of having to use a variety of methods and assumptions to obtain estimates. This illustrates what a difficult concept presenteeism is to estimate, and how sensitive estimates are to the assumptions made.

Owing to the assumptions made, the estimate of absenteeism is likely to miss a large group of absenteeism and thus the estimate is likely to be at most a lower bound. Despite this under-coverage, and in line with other research, it seems likely that absenteeism will be generally smaller in size than presenteeism. Working fewer hours, or not working at all, owing to ill health are estimated to affect widely different numbers of people; 458,500 and 42,300 respectively. However, in terms of costs their impact is more similar; $1.442 billion and $1.755 billion respectively.

Taking the estimate of presenteeism nearest the mid-point of the range, indirect costs are estimated to be $7.483 billion; 4.9% of GDP. Presenteeism accounts for 55% of this cost, not working 23%, working less 19% and absenteeism just 3%.

The only component of direct costs estimated is hospital inpatient appointments, owing to data limitations and the particular focus of this study. Around 1,301,700 people are estimated to be affected by hospital inpatient costs or indirect costs. In monetary terms the total cost of the considered components is estimated to be $5.417 to $12.853 billion; 3.6% to 8.5% of GDP.

This Working Paper is available in Adobe PDF and HTML format. Using PDF Files


Thank you to Lisa Meehan, Katy Henderson, Grant Scobie, Caroline Shaw, Kristie Carter, Gerald Minnee and Gary Blick for their advice and comments. I would also like to thank Southern Cross Medical Care Society for allowing me to have access to results from their survey, specifically to Jo Broadhead for dealing with all my enquiries.

The Health Research Council of New Zealand, and Health Inequalities Research Programme of the University of Otago, Wellington, are acknowledged for funding and establishing the SoFIE-Health data utilised in this publication.


Access to the data used in this study was provided by Statistics New Zealand in a secure environment designed to give effect to the confidentiality provisions of the Statistics Act 1975. A large portion of the analysis in this paper is based on data from the Survey of Family Income and Employment (SoFIE). Statistics NewZealand has initiated a systems review for SoFIE. Therefore data contained in this paper could be subject to change. However, any errors in the analysis are those of the author, not Statistics New Zealand.

The views, opinions, findings and conclusions or recommendations expressed in this Working Paper are strictly those of the author. They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government. The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.

Last updated: 
Tuesday, 27 October 2015