The economic impact of opioid misuse in Indiana.

• Author: Brewer, Ryan M.

In Indiana, we have begun to see situations where continued gross state product (GSP) growth is challenged by a limit of available labor. While economic forecasts suggest 2 to 3 percent GSP growth is likely in 2018, the achievement of that kind of growth will rely in part on new jobs.

However, with more working-age residents choosing to remain part of the labor force, coincident with a continuously decreasing unemployment rate, Hoosier employers have been finding it challenging to fill vacant positions. The Hoosier labor force has not been keeping pace with job growth demands --particularly in areas requiring skilled labor and/or higher educational attainment. With labor markets tightening across the Hoosier state, the widely publicized opioid/opiate epidemic is now not only a terrible social crisis, but it also has become measurable in terms of lost economic output. (Note: For the purposes of this article, we use the terms opioid and opiate interchangeably.)

In this study, the opioid epidemic in Indiana is analyzed through the lens of economics, and an estimate for the current GSP loss arising from opiates and their influence on the Hoosier workforce is presented.

Results

The direct GSP loss to the Indiana economy arising from opiates misuse is measured at $1.5 billion per year. Additional impacts are intangible or indirect in nature--stigma/reputation effects, morbidity effects and service inefficiencies--and they would cause the total annual economic losses in Indiana to be higher.

Background

Opioid misuse directly attenuates the economy by reducing the number of labor force participants and potential participants. For instance, many misusers end up incarcerated. Across America, there were 2.1 million prisoners in December 2015. (1) To place this in perspective, the U.S. incarcerates more of its citizens than any other country, jailing 0.7 percent of its total population. Canada incarcerates 0.1 percent of its people, for a comparison. Americans are incarcerated at a rate 700 percent higher than Canadians.

In Indiana, we have 43,500 people in jail as of 2015. The southeastern region of Indiana ranging diagonally from Richmond to Jeffersonville incarcerates residents at comparatively higher rates within Indiana. (2) This translates into a 0.9 percent incarceration rate among adults age 18 and older, placing us 19th in the country (approximately the same rate as the U.S. on the whole). (3) According to the Bureau of Prisons (2017), 48.6 percent of people incarcerated in federal prisons are there for drug-related offenses. This rate implies Indiana would hold approximately 21,000 prisoners because of illegal drug activity. With recidivism reported to be 76 percent nationally (suggesting current methods for developing character while in prison have limited success), an opportunity arises for Hoosier leaders to pause and try to structurally change how we handle drug-related correctional opportunities. Prisoners cannot add to GSP or employment production numbers in any efficient fashion; therefore, potential reward exists for improving this situation.

Another common outcome for opiate misusers is death. More Americans died of opioid overdoses in 2016 alone than Americans died in combat during the entire Vietnam War. (4) In Indiana, opioid overdose deaths increased 52 percent in 2016 over 2015 levels. Experts anticipate opioid overdoses to continue to increase through the end of 2017. (5)

Labor force and employment details

The economic recovery has been good for employment numbers in Indiana. Over the past five years of available data (2012 to 2016), the labor force participation rate has been increasing, the unemployment rate has been dropping, and our population has concurrently been getting older. Consequently, the number of people available for work in Indiana has been dropping in concert with the recovery. Table 1 presents the labor force and employment numbers in Indiana and in America (for comparison) from 2012 through 2016, while also highlighting the growing number of residents over age 65.

The Great Recession left the United States with considerable employment slack, with nearly all industries affected. (6) Between December 2007 and December 2009, the U.S. had lost over 8 million jobs. By 2012, the entire country and the state of Indiana were both increasing the labor force and reducing the numbers of unemployed. With economic growth, we have seen job growth in America and in Indiana, and yet the effects on each labor market have been quite different. The available labor force under 66 years old has dropped in Indiana by 14 percent from 2012 to 2016, while this same group nationwide has dropped by only 1 percent (see Table 2). In any normal context, this statistic would be heralded unquestionably as good news--showing the work ethic and moxie of Hoosiers, as our pace of reentrance into the workforce has been impressive. However, looking forward, the challenge is to find new job growth and to be able to effectively fill newly created positions.

Indiana's working-age labor force (theoretically) available for employment was just about 991,000 in 2016, 14 percent less than what it had been four years prior, when it measured about 1.15 million. In the United States as a whole, the working-age labor force (theoretically) available for work dropped only slightly--from about 52.8 million in 2012 to about 52.1 million as of the end of 2016. Therefore, the Indiana labor market has tightened considerably more than has the U.S. labor market, creating a condition wherein the marginal strain on labor in Indiana caused by the opioid crisis is relatively more expensive.

So, Indiana has about 3.2 million working citizens, another 1.14...