In chapter 12 of Investing in Kids, I consider a wide variety of improvements in a state’s human capital, and their potential economic development benefits for a state economy.
One human capital improvement I consider is reducing the earnings penalty from mental illness. Meta-analysis of the research literature by Aos et al (2006) suggests that about 3.8% of the adult population has a serious mental illness. The average earnings penalty from serious mental illness is to reduce earnings by 15 percent.
I estimate the state economic development benefits from eliminating this earnings penalty for one person with serious and persistent mental illness. Alternatively, this estimate could be viewed as reducing half the earnings penalty for two persons with mental illness, or a fourth of the earnings penalty for four persons with mental illness. These economic development benefits are based on estimates on how the number and quality of jobs in a state economy will respond to stronger job skills in the state’s labor force.
I conclude that a policy that reduces the earnings penalty from mental illness for one person, or the equivalent, will provide economic development benefits for a state economy of $91,000. These economic development benefits are the increased present value of per capita earnings for state residents.
Such economic development benefits are sufficient to justify quite costly interventions to more effectively treat chronic and persistent mental illness. For example, “assertive community treatment” has been shown by experimental studies to pass a benefit-cost test.