The Effect of the Opioid Epidemic on Labor Force Participation: A Study in Causality

Abstract

In 1996, the FDA marked oxycodone under the brand name OxyContin as a non-addictive substance and released the opioid-based prescription pain medication to the market. Despite the FDA’s designation in 1996, opioids are extremely addictive. Today, the United States is gripped by an opioid epidemic, marked by an economic burden estimated by Florence and Curtis (2016) to be approximately $78.5 billion. One of the likely consequences of the epidemic is a decline in the labor force participation rate, or the percentage of the working age population that is actively seeking work. Inspired by Where Have All the Workers Gone (2017) by Alan Krueger, this paper contributes an instrumental variables regression to discuss the causal influence of the opioid epidemic on labor force participation. The reason to employ an instrumental variables approach is the plethora of potential confounding factors and reverse causalities implied by utilizing opioid prescription rates as a measure of opioid use. To avoid these problems and establish a clearer causal link, I use an instrumental variable that is based on Prescription Drug Monitoring Programs, which were implemented in some states over the past 10 or more years to reduce over-prescription of opioids by tracking the phenomena of “doctor shopping” and overprescribing. By requiring doctors to submit to and consult from a database of patients, prescribers can know if their patient has requested opioid drugs in the past and at what frequency. Because this database lacks a direct relationship with the labor force participation rate, using the implementation of these programs as an instrumental variable can account for these confounding factors.