Estimating Global Friction Periods for Economic Evaluation: A Case Study of Selected OECD Member Countries

The friction cost approach (FCA) offers an alternative to the dominant human capital approach to value productivity losses. Application of the FCA in practice is limited largely due to data availability. Recent attempts have tried to standardise the estimation of friction periods across Europe, but to date, this has not been attempted elsewhere. Our aim was to estimate friction periods for 17 Organisation for Economic Co-operation and Development (OECD) member countries between 2010 and 2021 based on routinely published data.

We derived friction period estimates for Australia, Austria, Canada, Czechia, Finland, Germany, Hungary, Japan, Korea, Luxembourg, Norway, Poland, Portugal, Sweden, Switzerland, the United Kingdom and the United States. Vacancy stock and flow data was sourced from the OECD's short-term labour situation database from 2010 to 2021, and included the impact of Covid-19 on the labour market. The estimated friction periods were applied to cost cancer-related premature mortality for the United States as an illustrative case.

The average friction period in the five non-European countries (Australia, Canada, Korea, Japan and the United States) was 61.0 days (SD 9.4) (range between 44.8 days in Korea and 82.2 days in Canada) and the average friction period in the 12 European countries was 60.6 days (SD 14.8) (range between 34.1 days in Switzerland and 137.3 days in Czechia). In both cases, the outbreak of Covid-19 increased the length of the friction period. Our illustrative case revealed that productivity costs in the US were over a third lower using the study-specific friction period (56 days) compared with the conventionally assumed 90-day friction period applied in the literature as a default measure.

Our results expand the potential application of the FCA outside of Europe and will support greater utilisation of the FCA and wider inclusion of productivity costs in societal-based economic evaluations based on the use of widely available and updated key labour market variables in our selected countries.