Presentation "Healthcare and Macroeconomy: the case of Latvia " by Oļegs Krasnopjorovs, Chief Economist, Latvijas Banka

1. Healthcare and Macroeconomy:
the case of Latvia
Dr. Olegs Krasnopjorovs
20.05.2021.
Olegs.Krasnopjorovs@bank.lv

2. Source: Eurostat population projections (2019).
People aged 20-64 (thousand)
Working age population is going to shrink further
in the coming years => drag on economic growth
Latvia
600
700
800
900
1000
1100
1200
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
Baseline Lower fertility
Lower mortality Higher migration
Lower migration No migration
Estonia
600
620
640
660
680
700
720
740
760
780
800
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
Baseline Lower fertility
Lower mortality Higher migration
Lower migration No migration
Lithuania
1000
1100
1200
1300
1400
1500
1600
1700
1800
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
Baseline Lower fertility
Lower mortality Higher migration
Lower migration No migration

3. Source: Krasnopjorovs, O. Anatomy of labour reserves in the Baltic countries: a snapshot 15 years after the EU accession. Bank of Latvia Discussion paper 2/2019.
Internal labour reserves in the Baltic countries by age group and gender
(thousands of people; in 2018)
3
Internal labour reserves were substantial even before
pandemics and need to be activated
Estonia Latvia Lithuania
Men Women Men Women Men Women
Age
group
15-19 6.3 5.0 11.3 11.1 17.1 17.8
20-24 0.6 3.4 8.1 9.1
25-29 2.4 1.9 0.1
30-34 2.6 1.8 1.1
35-39 1.2 1.2 1.7 2.1
40-44 0.5 2.3 7.6
45-49 1.5 5.5 9.0
50-54 1.3 6.0 7.0
55-59 4.4 5.2 7.4
60-64 1.7 3.8
Total 26.9 55.9 86.3
Youth: low prevalence of vocational
education and apprenticeships;
Upper-middle-aged men:
low incidence of lifelong learning,
low digital skills,
rapidly deteriorating health condition.
Labour reserves reflect additional employment that would be observed if the employment rates in particular age groups reached the level of the EU7.
EU7: Germany, Austria, Denmark, Netherlands, Sweden, Czechia, UK.
4 – 7% of the
economically active population

4. Raising the retirement age is not a panacea
if employment is hampered by health problems
Expected life expectancy of 50-year-old men (in 2018) Self-perceived health status of upper-middle-aged
men (index; age group 55-64; in 2019)
Source: Eurostat data, Bank of Latvia staff calculations
4
0
5
10
15
20
25
30
35
Switzerland
Iceland
Italy
Norway
Cyprus
Sweden
Ireland
Spain
Malta
France
Netherlands
Luxembourg
UK
Belgium
Greece
Austria
Denmark
Germany
Portugal
Slovenia
Czechia
Croatia
Poland
Estonia
Slovakia
Lithuania
Hungary
Romania
Bulgaria
Latvia
in good health in bad health
+200: very good
+100: good
0: fair
-100: bad
-200: very bad
0
20
40
60
80
100
Greece
Iceland
Ireland
Switzerland
Sweden
Norway
Cyprus
Netherlands
Italy
UK
Belgium
Malta
Austria
Finland
France
Denmark
Luxembourg
Romania
Bulgaria
Slovenia
Germany
Czechia
Slovakia
Portugal
Poland
Croatia
Hungary
Estonia
Lithuania
Latvia

5. To raise healthcare outcomes increasing funding is not enough;
healthcare system efficiency should be improved
BE
BG
CZ
DK
DE
EE
IE
GR
SP
FR
CR
IT
CY
LV
LT
LU
HU
MT
NL
AT
PL
PT
RO
SL
SK
FI
SE
IC
NO
CH
UK
0
100
200
300
400
500
600
700
800
900
0 2 4 6 8 10
Hospital
beds
per
100
ths.
people
Public spending on healthcare, % of GDP
BE
BG
CZ
DK DE
EE
IE
GR
SP
FR
CR
IT
CY
LV
LT
LU
HU
MT
NL AT
PL
PT
RO
SL
SK
FI
SE
IC NO
CH
UK
74
75
76
77
78
79
80
81
82
83
84
85
0 200 400 600 800
Life
expectancy
at
birth
(years)
Hospital beds per 100 ths. people
Cost efficiency of healthcare (2018) System efficiency of healthcare (2018)
Source: Eurostat data; author’s calculations
5
Input Output Outcome
Cost Efficiency System efficiency

6. Impact of healthcare on the macroeconomy: methodology
• Impact reflects two parts:
1. Quantity: lower mortality => bigger population => more people employed => ↑ GDP.
2. Quality: people become more healthy => ↑ probability of employment and to work longer hours; ↑ productivity => ↑ GDP
• Our calculations include only (1) quantity (calculations more straightforward and less depend on assumptions).
• Peer group of 6 countries was selected - Belgium, Denmark, Germany, France, Netherlands, UK). No Southern Europe
(long life expectancy driven by climate?), no Scandinavia (could we somewhen achieve their income level?);
• Mortality age coefficients (by each cohort) in Latvia and in the group of peer countries (6 country average) => for each
cohort we calculate the number of Latvian citizens which would stay alive if Latvia would have exactly the same mortality
age coefficients as peer countries (for each year during 2002-2019). Age until 65 years. Assume that these «extra people»
do not migrate and will not have children (these effects are likely to compensate each other).
• By multiplying with employment level of each age group, we get extra number of people employed, which would work for
Latvian economy if would stay alive.
• For the impact on GDP, assume Cobb-Douglas production function with elasticity of GDP subject to the number of people
employed equal to 0.67

7. Substantial gains, if Latvian healthcare system would have
improved already in the beginning of 2000-ties
4 000
Number of saved
lives every year
60 000
Latvian population today
would be larger by this
amount
Population Employment Economic growth (GDP)
40 000
there would be more
employees
0.2% every year
faster economic growth
rate would be achieved
4%
bigger GDP in Latvia
would be
Source: Eurostat data; author’s calculations

8. Source: Eurostat data; author’s calculations. For details see Bank of Latvia Discussion paper #2 / 2019.
Lifestyle of men aged 25–44 in the Baltic countries by income quintile (in 2014)
8
Health outcomes go beyond healthcare system:
promoting healthy lifestyle is essential
EU7 includes Germany, Austria, Denmark, the Netherlands, Sweden, Czechia and the UK.
The 1st quintile represents 20% of the population with the lowest income,
while the 5th quintile – 20% of the population with the highest income.

9. High share of out-of-pocket spending
decreases access of healthcare for low-income households
9
Healthcare spending (% of GDP; in 2018)
0
2
4
6
8
10
12
Germany
France
Sweden
Belgium
Austria
Denmark
UK
Netherlands
Portugal
Finland
Spain
Malta
Italy
Slovenia
Greece
Czechia
Bulgaria
Ireland
Croatia
Cyprus
Hungary
Slovakia
Estonia
Lithuania
Poland
Latvia
Romania
Luxembourg
government and compulsory contribution voluntary contribution schemes household out-of-pocket payments
Source: Eurostat data

10. IEROBEŽOTA PIEEJAMĪBA
Total economy
-15
-10
-5
0
5
10
below
400
400-700
700-1000
1000-1500
1500-2000
2000-3000
3000-4000
4000+
Source: Central Statistical Bureau of Latvia and State Revenue Service data; author’s calculations.
For methodology see Dolado, Felgueroso, Jimeno (2020). «The Spanish Labour Market at the Crossroads: Covid-19 meets and megatrends»
Number of employees subject to earned gross monthly wage
(%; May – December 2020 compared to February 2020;
seasonally adjusted)
10
As low-wage workers suffered more layoffs during the
pandemics, their access to healthcare might deteriorate further
White colour here…
Ranged by 2019 occupational mean wage – percentile rank
Low wage High wage
Change in employment share during April – November 2020,
subject to mean wage in 2019 (smooth local regression («loess»)
with 95% confidence interval; based on 3-digit ISCO occupation
breakdown)

11. 0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
Slovakia
Czech
Rep.
Slovenia
Malta
Estonia
Belgium
Netherlands
Poland
Ireland
Cyprus
Austria
Latvia
Italy
Hungary
Spain
Denmark
Croatia
Finland
EU-27…
Lithuania
France
Romania
Luxembourg
Bulgaria
Portugal
Greece
Germany
Sweden
Other social transfers
Old-age pensions
Gini index
Gini index before pensions and social transfers
Source: Eurostat data
Income inequality (Gini index) before
and after social transfers (in 2019)
Social benefits do not reach the poorest people
BE
BG
CZ
DK
DE
EE
IE
GR
SP
FR
CR
IT
CY
LV
LT
LU
HU
MT
NL
AT
PL
PT
RO
SL
SK
FI
SE
IS
NO
CH
UK
10
15
20
25
30
5 10 15 20 25
Decrease
of
income
inequality
as
a
result
of
social
transfers
Public spending on social transfers, % of GDP
Public spending efficiency in social protection
(in 2019)
11
Inefficiency of social spending

12. ►Further decrease of the working age population is likely to put a drag on economic
growth rate => remaining internal labour reserves are still substantial and should be
activated;
►One of the reasons why employment of upper-middle-aged men is still low, is their
rapidly deteriorating health condition;
►To raise healthcare outcomes increasing funding is not enough; healthcare system
efficiency should be improved and healthy lifestyle should be promoted;
►Improving health can save 4000 lives (in working age) every year and increase
GDP annual growth rate by 0.2%;
►Pandemics affected the labour market outcomes of low-income workers the most:
this might further limit access to healthcare for low-income households.
Takeaways
12