The Mental Health Crisis & The Economy

By Anna Thompson

Mental health plays a key role in the overall vitality and wellbeing of the economy. According to the Health Council, a mental illness is defined as ‘a clinically diagnosable disorder that significantly interferes with a person’s cognitive, emotional or social abilities’. As stated in the National Health Survey, one in five Australians reported having a mental disorder between the period of 2017 to 2018. It is to no surprise that mental illness rates have been exacerbated by the pandemic. Worldwide, there has been an estimated AU$533 million increase in costs due to mental health issues related to COVID-19 – this is 0.49 percent of gross domestic product (GDP) worldwide. 

Impact of mental illness on the economy

From a macroeconomic perspective, the cost of mental illness to the economy can be quantified as lost economic output. This is calculated by estimating the predicted impact on the GDP. Mental illness negatively impacts labour and capital growth. Because labour and capital growth directly correlate to the state of the economy, an exacerbation of mental illness cases will negatively impact the overall economy. 

Capital is adversely affected through the re-allocation of resources towards healthcare expenditures. Between 2006 and 2007, the Australian government and health insurers allocated AU$4.7 billion (7.3 percent of all government health spending) towards providing mental health services. This government spending has remained consistently high. However, these figures only consider the cost of operating the mental health services – they ignore the full economic burden, and costs of mental health. Due to the debilitating effects mental illness often causes, many people are dependent on the government for additional assistance in addition to the provision of treatment services. According to the National Mental Health Report 2007, this assistance includes the government supplying ‘housing, community and domiciliary care, income support, and employment and training opportunities’. This report estimated that these government expenditures on mainstream mental illness support and treatment greatly exceeded those on specialist mental illness services.

Text equivalent below for figure 5: Comparing the direct and 'indirect' cost to governments of mental illness, 2004–05

Labour is negatively affected by disability and mortality, causing a decrease in labour force and a reduction in the productivity of those remaining. According to a study by the Productivity Commission, of six major health conditions including cancer, mental illness, arthritis and diabetes, mental illness is associated with the lowest likelihood of participating in the labour force. As a result, there is an indirect economic cost through loss of productivity and economic growth. According to the Australian Government’s Department of Health, loss of productivity as a result of mental illness incurs an estimated annual cost of AU$10 to AU$15 billion. 

It was predicted by the World Economic Forum in 2011 that, by 2030, mental illness will account for US$6 trillion – more than half of the global economic burden resulting from non-communicable diseases. This is an expectation that indirect and direct costs of mental illnesses will double by 2030.

Economic costs of mental disorders in trillion US Dollars using three different approaches: direct and indirect costs (A), impact on economic growth (B), and value of statistical life (C).

Source: EMBO reports

Aside from purely monetary economic impacts, the personal and economic consequences of mental illness have the ability to impact the community on a wider scale, such as often contributing to higher divorce rates and lower average life spans.

Impact of the economy on mental illness

It should also be noted that economic disadvantage is positively correlated with mental illness. Economic disadvantage  produces a greater possibility of mental illness through factors such as increased exposure to risk factors (for example, social exclusion, fewer opportunities to access protective factors like education, and becoming trapped in the poverty cycle).

Challenges in mental health economics

Evidence and data on the societal economic burden of mental illness are important for policymakers in understanding the depth of the problem. The evidence and data allow for the magnitude of the problem to be quantified, and for the under-allocation of resources towards mental illness treatment and services to be highlighted. However, especially in low and middle-income countries, there are often difficulties in collecting sufficient evidence. There are frequent gaps in the database, with some areas remaining unexplored, despite a recent increase in cost-effectiveness and related studies. For example, there is limited data available on the long term economic consequences of, and treatments for, mental illness – most of the data has a short term outlook. Additionally, there is very minimal data surrounding the topics of prevention and early intervention.

Sources: Australian Government – Australian Institute of Health & Welfare, U.S. National Library of Medicine – National Institutes of Health, EMBO reports, World Psychiatry

The authors of this publication are not qualified to provide financial or investment advice and as such the content provided should not be construed in this manner. All information is intended purely for educational purposes and is provided for the personal interest of UNIT members. The opinions expressed within the article do not reflect those of UNIT as an organisation, its partners or its sponsors.