The Effects of Opioids on Kentucky’s Workforce

Opioid abuse represents a significant and growing public health issue for both the nation and Kentucky. In 2016, opioids contributed to more than 62,000 deaths nationally and 1,406 deaths in Kentucky. National studies have placed the societal costs of opioid abuse at $55.7 billion in 2007 and $78.5 billion in 2013 (Birbaum et al. (2011) and Florence et al. (2016)). These costs included increased health care expenditures, higher criminal justice costs, and lost earnings due to reduced employment and premature deaths. The While House Council of Economic Advisors (2017) estimated the societal costs of opioid abuse to be much higher when the value of lives lost are included. They estimated the cost of opioid abuse to be $504 billion in 2015. Growth in opioid abuse creates fiscal pressures for state and local agencies by increasing the needs for foster care, health care, criminal justice programs, and many other types of public services. Because opioid abuse can also reduce employment and earnings, it adds to these fiscal pressures by reducing tax collections. To better understand these fiscal pressures, the Department of Public Health contracted with the University of Kentucky’s Center for Business and Economic Research (CBER) to study how opioid abuse affects the state’s workforce. This study has three main goals: 1. estimate the effect opioid abuse has on Kentucky’s workforce; 2. estimate the effect opioid abuse has on state tax revenues; and 3. examine how public programs designed to address opioid abuse could affect the state’s workforce and tax revenues. The growth in opioid abuse is estimated to have reduced Kentucky’s labor force participation rate by 1.3 to 3.1 percentage points. This translates to a loss of 23,100 to 55,200 workers, $1.0 to $2.8 billion in earnings, and $63 to $169 million in state tax revenues. However, there is still considerable uncertainty regarding the extent to which opioids reduce labor force participation. Opioid-related deaths represent an additional economic loss to the state. In the absence of these premature deaths, many of these individuals might have worked and earned an income for many years. In 2016, opioids contributed to 1,374 deaths of Kentucky residents under the age of 65. Had these individuals been able to live out their natural lives they would have generated $348.3 million to $697 million in lifetime earnings and $20.9 million to $42 million in state tax revenues. These lifetime losses are spread over many years and do not represent the losses in any one year. Losses for any single year reflect the cumulative effects of opioid-related deaths that occurred several years before. For example, opioid-related deaths occurring from 2007 through 2016 are estimated to have reduced earnings by $155 million to $310 million and state tax revenues by $9.3 million to $18.6 million in 2017. For those who continue to work, opioid abuse can increase absenteeism and reduce their productivity while at work. This reduced productivity is estimated to cost the state’s economy $240 million annually. If all of this lost productivity is passed on to workers in the form of lower wages, this would amount to a loss of $14.4 million in state tax revenues per year.

There is strong evidence that state level policies such as prescription drug monitoring programs (PDMP) and medically-assisted treatment can help address opioid abuse. However, there appears to be little research examining how these programs might affect employment and earnings. Although the research is mixed, one study did find that PDMP resulted in 1.12 fewer opioidrelated deaths per 100,000 people (Patrick et al. 2016). This would suggest Kentucky’s KASPER program, which was established in 1999, may prevent 50 deaths and the loss of $25.3 million in lifetime earnings and $1.5 million in lifetime state tax revenues each year. Again, these lifetime earnings and tax revenues are spread over many years, so they do not represent an annual fiscal impact. Overall, opioid abuse is estimated to reduce state tax revenues by $96 million to $202 million annually. These lower tax revenues include losses from reduced employment, premature deaths from the preceding 10 years, and reduced productivity. These losses are in addition to any increased expenditures state agencies incur due to opioid abuse.