The economic impact of dentistry
DONALD R. HOUSE, Ph.D.,
CLIFFORD L. FRY, Ph.D. and
L. JACKSON BROWN, D.D.S., Ph.D.
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ABSTRACT
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Background. The goal of the authors’ research was to determine the national economic impact of expenditures arising from the provision of dental services.
Methods. The authors used a well-known and accepted methodology in economics known as input-output analysis to measure the economic impact. These models describe—among other things—the interrelationships between businesses, government, households and the foreign sector with regard to where inputs come from and where outputs go.
Results. For 2000, national expenditures attributable to the provision of dental services were calculated at $203.6 billion. Dentistry accounted for more than two million jobs nationwide. Taxes generated directly or indirectly from dental activity totaled more than $33 billion. The annual impact of one additional dentist on the economy was estimated at $1,278,253.
Conclusions. Dentistry provides substantial local and national economic benefits, including increased economic activity, employment and tax revenues. For small counties, an additional dentist provides a significant boost to the local economy.
In this article, we report the impact on the nation’s economy stemming from the provision of dental services. We also analyze the economic impact of the addition of one dental office. Although the economic impact is strongest where the dental office is located, the impact is not confined to that locality. For example, materials from outside the local economies are purchased by dentists, businesses that sell to the dentists’ offices, and other firms and industries affected by the economic activity stemming from the dentists’ offices. The influence of any economic activity commonly spreads beyond a local economy.
To be clear, our analysis does not measure the total value of dentistry to an economy. Such an analysis would compare an economy without dental services with the same economy with dental services, thereby capturing the contribution of dental services to patients’ productivity levels. For example, people experiencing pain due to unaddressed dental problems are less productive than those whose dental problems have been addressed professionally. The measure of the total contribution of dentistry to an economy would include this impact on productivity, but isolating the increase in productivity related only to dental services would be very difficult.
Dentistry provides substantial local and national economic benefits.
In addition to measuring the impact of the dental industry as a whole, we set out to measure how much extra spending would occur if the number of dental offices were increased by one of average size. Expenditures increase as the new dental office buys dental supplies. Spending also increases as incomes generated in the dental sector are spent in other industries in the economy. This study will shed light on the relative sizes of these different types of spending.
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DATA AND METHODS
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The U.S. Census Bureau provides information about service industries grouped according to criteria used for Standard Industrial Classification and North American Industry Classification System codes.1 The data provide information about the dental delivery system in regard to the number of establishments, value of receipts, annual payroll and total number of paid employees. Table 1
provides the latest data available (per-establishment averages were calculated and also are included in Table 1).
To measure the economic impact of the provision of additional dental services, we used a well-known and accepted methodology in economics known as input-output analysis (often referred to as an input-output model).2-5 These models describe the interrelationships of money flows (and the associated flows of goods and services) between businesses, government and households, as well as exports from and imports to a region. A region can be defined as a nation, or it can be defined as a much smaller area, such as a county. The interrelationships in the input-output models identify, for any particular industry, where all inputs come from and where the output goes. The particular combination of industry data used in our model is defined and grouped by the federal government.
The government does not compile and report information about dental offices separately for the purposes of its input-output studies. It combines data on dental offices with data on physicians’ offices. Therefore, we adjusted the year 2000 data with which our analysis was performed to pertain only to dentistry.
The nation’s dentists buy inputs that originate within the United States, as well as some inputs that contain at least some components originating from outside the United States. These inputs are considered outputs by the firms that sell them. Similarly, input-output models measure the output of an industry that goes to other industries within the region and the output sold outside the region. Because dentists provide services to individuals, we can consider the "output" of the dental industry as going to the household sector.
Our calculations measure the total effect on the nation’s spending of an increase in dentists’ revenues and in the number of dental offices. These calculations, however, also measure the different types of spending effects that make up this total. Therefore, it will help if we first define the various effects for which calculations are presented.
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TYPES OF ECONOMIC IMPACT
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Definitions.
Input-output models calculate the direct effect, the indirect effect, the induced effect and the total effect of a change in dental office revenues and expenditures. For dentists, the direct, indirect and induced effects are defined as follows:
Direct effects.
This is the total revenue of dental offices. The total revenue is used to cover expenses and make capital improvements; in addition, it is hoped, some revenue is taken as profit. Direct effects, therefore, also can be measured by where the revenue goes: the sum of expenditures on supplies, wages and salaries, and taxes paid, as well as the profits of the dental practices.
Indirect effects.
These are purchases of inputs by firms that supply goods and services to the dental offices. For example, manufacturers of dental equipment buy stainless steel and other materials, and these expenditures help support workers in those industries.
Induced effects.
These include benefits to the economy as the result of increased spending by people who work in dental offices and by those who supply goods and services to dental offices. For example, when dental workers go to a restaurant, they help support restaurant workers. When paying for maintenance for their automobiles, dental workers help support auto repair workers.
Total effect.
This is the sum of the direct, indirect and induced effects.
Value added.
In the field of economics, the concept of value added often is examined. Formally, it is "the output of an industry minus its purchases from other industries."6
Value added by the dental sector is the difference between revenue received and the expenditures made by dentists on raw materials and finished products and services. This difference, or value added, also is equal to labor income, which is defined as employee compensation and proprietor income, along with real estate–related income plus indirect business taxes. The concept of value added is intended to measure how much value the dental sector adds to the economy over and above the value of the goods and services it purchases from others.
Regions.
Interpretation of an input-output analysis of a small region differs somewhat from that of the nation. If a company moves from one area of the country to another, the recipient region would experience an increase in economic activity that could be a multiple of the direct revenues or output of the company. Similarly, the region from which the company moved would experience a decrease in economic activity. Economic activity in the nation as a whole, however, likely would demonstrate little effect because of such a move.
The results of this study pertain to an expansion in the number of dental offices in the nation. Because of the specialized education required, the dental profession is not one that an individual can enter quickly from another profession. Therefore, the likely reason for expansion is a young dentist’s starting a career. (Of course, for expansion to occur, more dentists have to enter the profession than leave it during the period studied.)
The results also are a relevant, but less precise, measure of the impact on a smaller region than the nation, for example, a specific region or area where a new dentist is moving his or her office. The economic impact can be determined more precisely for a small region if one performs an input-output analysis for that specific region of interest.
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NATIONAL ECONOMIC IMPACT OF DENTISTRY
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Overall.
We assessed the economic importance of dental revenues and spending on the national economy using data for the year 2000. As mentioned above, revenue data for 2000 for dentists, physicians and other health care professionals are combined in the data reported by the government that must be used for input-output analyses. To estimate the impact of dentists alone, we had to adjust these data.
To make the adjustment, we computed a ratio of dentists’ revenues to the total revenues of these health care providers. Because revenues were not reported separately for dentists for the year 2000, we used dentist revenue information from the 1997 Economic Census1 to calculate the ratio. Our assumption was that the relative importance of dentists’ revenues to the total revenues for the "physician and dentist" category would be the same in 2000 as it was in 1997. The calculated ratio was 0.2—implying that dentists’ revenues made up 20 percent of the total.
Thus, we multiplied the revenue for 2000 reported in the input-output model for the dentist/physician category by 20 percent to obtain dentists’ revenues only. We performed the input-output analysis using this lower revenue for dentists. The results are shown in Table 27 and Figure 1.7 The total economic impact of dentistry in 2000 was measured at $203.6 billion.
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Figure 1. Impact of the provision of dental services on the nation’s economy, by type of impact, in 2000 (Source: House and Fry7).
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Industry.
The input-output analysis can provide more refined information than the total impact. For example, the total impact of dentistry on the nation’s economy can be broken down at the industry level; thus, industries that are most affected by this spending stream can be identified. As shown in Table 3,7 aside from dentistry itself, the impact was highest in the following three industries: services at $35,536,613,376; finance, insurance and real estate at $29,089,851,392; and manufacturing at $24,705,718,272.
Key economic variables.
Employment.
The input-output analysis estimates the impact of dentistry for key economic variables. For example, direct employment in dentistry (including all personnel employed part-time or full-time by dentists) totaled 713,334 jobs. However, the total employment attributable to dentistry—once the indirect and induced impacts are accounted for—is 2,056,568 jobs.
Taxes.
The dental sector generates income to various groups, and taxes are paid with this generated income. These taxes include Social Security taxes, sales taxes, property taxes, personal income taxes and indirect business taxes. In 2000, the tax payments attributable to the economic activity stemming from the dental sector amounted to $33,058,910,744.
Value added.
As mentioned above, value added by the dental sector is the difference between revenue received and the expenditures on raw materials and finished products and services.
Table 47 shows the total value added from dentistry in all sectors (including dentistry). Direct value added for dentistry measures how much value the dental workforce adds within the dental sector only. The direct value added by the dental sector is $47,787,556,864 for the year 2000 (Table 4). Expressing this direct value added as a percentage of the total dental revenue (see direct impact in Table 2
) yields 67.8 percent.
We then can compare this measure with other sectors of the economy (Figure 27). For example, direct value added from other sectors such as petroleum refining, poultry and eggs, and motor vehicles is 12.1 percent, 21.1 percent and 26.7 percent, respectively. Note that these are value-added measures within each industry. Thus, the 67.8 percent value added for dentists and dental workers establishes dentistry as a high value-added economic sector.
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NATIONAL ECONOMIC IMPACT OF ONE ADDITIONAL DENTAL OFFICE
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The introduction of a dental office into a community has an impact on the local economy, as well as on surrounding counties and the state. There will even be some additional national impact as essential goods and services are purchased in interstate trade. With knowledge about where the new dental office is to be located, we can make more exact measures of local versus national impact.
Our objective here is a modest one of assessing the economic impact for the nation, irrespective of the location of the dentist’s office. The key assumptions are that the dentist’s practice represents an increase in the number of dental offices and that the revenue of the new office is the average revenue for a dental office in the nation. In 1997, the average revenue per dental office was $424,618 (Table 1). Based on a growth in revenue of approximately 4 percent per employee in physicians’ and dentists’ offices, we adjusted the 1997 average to $442,161 for 2000 to be used in the input-output analysis. These assumptions enable us to determine the economic impact of a dental office based on all information available. The results are shown in Table 5.7 We measured the total economic impact of one additional dental office on the U.S. economy to be $1,278,253 in 2000.
In addition, we measured the impact of an additional dental office on key economic variables. For example:
- – the total impact on employment was 13 new jobs
- – the total annual impact on labor income was $570,686;
- – the total annual impact on taxes was $207,518;
- – the total value added per year was $798,411.
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NATIONAL ECONOMIC IMPACT OF A NEW DENTAL OFFICE IN TEXAS
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We selected two counties in Texas—Bastrop and Lee—to demonstrate the use of the input-output analysis in measuring the impact of dentistry on a smaller geographical level.8 In 2000, Bastrop County had a population of 57,733.9 Total employment (full- and part-time) was 19,307, and average annual earnings per job were $20,910. Personal income for the entire county in 2000 totaled $1,219,589,000.9 Lee County is a smaller county, with a population of 15,657.10 Total employment (full- and part-time) was 8,988 in 2000, and average annual earnings per job were $19,600. Total personal income for the county was $308,186,000.10
We measured the annual impact of a new dental office in the two-county area in Texas in 2000 as follows:
- – direct impact: $442,161;
- – indirect impact: $95,711;
- – induced impact: $105,267;
- – total impact: $643,139.
Because each county or combination of counties has a unique business pattern and combination of types of businesses, the impact on a county will differ depending on the county chosen. A greater portion of the revenue impact typically occurs in a county dominated by a big city than in a rural county, because the city is capable of supplying a larger portion of the total goods demanded by the dental business and more of the workers whose incomes are affected by the dental establishment.
However, for a rural county, the impact of an additional dental office may be more important than it is in a big city in terms of the percentage increase in economic activity. With data from the input-output model, one could determine how much of the revenue stays in a grouped two-county area, four-county area, state or contiguous three-state area or, for that matter, any other geographical area of interest.
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CONCLUSION
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The analyses described in this article demonstrate that dental offices provide substantial benefits. These benefits accrue not only to local economies in which the dentists are located, but also to the national economy in the form of increased income and employment.
Specifically, the benefits consist of additional income generated to other businesses as dental workers spend their incomes, as workers supplying goods and services to dental offices spend their incomes, and as governments spend the tax money collected from the additional income.
Dental offices are high value-added businesses, and they add more value to the nation’s economy than their direct revenues indicate. The economic impact of a dental office can be determined for the nation, for the county in which it is located or for any number of counties surrounding the dental office. Even without measures of the importance of dental care to individuals’ productivity, dental offices contribute to the overall economic health of the communities in which they are located. For smaller counties, the economic impact of an additional dentist can be a substantial boost to its overall economic activity.
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Dr. House is president, RRC Inc., 3833 S. Texas Ave., Suite 285, Bryan, Texas 77802, e-mail "dhouse{at}rrc-inc.com". Address reprint requests to Dr. House.
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Dr. Brown is associate executive director, American Dental Association, Health Policy Resources Center, Chicago, Ill.
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REFERENCES
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- U.S. Census Bureau. 1997 economic census. Available at: "landview.census.gov/epcd/www/ec97stat.htm". Accessed Feb. 17, 2003.
- Leontief WW. Input-output economics. New York: Oxford University Press; 1986.
- Leontief WW. Studies in the structure of the American economy: Theoretical and empirical explorations in input-output analysis. White Plains, N.Y.: International Arts and Sciences Press; 1976.
- Isard W. Interregional and regional input-output techniques. In: Methods of regional analysis: An introduction to regional science. Cambridge, Mass.: MIT Press; 1960:309-74.
- Nourse HO. Measurement of regional economic activity. In: Regional economics: A study in the economic structure, stability, and growth of regions. New York: McGraw-Hill; 1968:129-54.
- Ruffin RJ, Gregory PR. Principles of economics. 4th ed. Glenview, Ill.: Scott Foresman; 1990:G-10.
- House DR, Fry CL. Economic impact of dentists (pamphlet). Dental Health Policy Analysis Series. Chicago: American Dental Association, Health Policy Resources Center; 2003.
- U.S. Census Bureau. State and county quickfacts. Texas County selection map. Available at: "quickfacts.census.gov/qfd/maps/texas_map.html". Accessed June 13, 2003.
- U.S. Census Bureau. State and county quickfacts: Bastrop County, Texas. Available at: "quickfacts.census.gov/qfd/states/48/48021.html". Accessed June 18, 2003.
- U.S. Census Bureau. State and county quickfacts: Lee County, Texas. Available at: "quickfacts.census.gov/qfd/states/48/48287.html". Accessed June 18, 2003.
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ABSTRACT
DATA AND METHODS
