Workforce impacts of subsidised mental healthcare: Evidence on supply, geographic distribution, and earnings

Abstract

To improve access to affordable mental healthcare, Australia introduced a national, publicly-funded program in 2006 to subsidise psychological services, which were previously privately funded. Theory suggests that by increasing demand, subsidies should incentivise providers to expand supply, either by entering the workforce or by increasing hours. However, expansion depends on supply constraints, particularly in non-metropolitan areas with pronounced workforce shortages. This study examines the program’s effects on the size, work hours, demographic composition, location, and earnings of psychologists. Using an event-study design with administrative tax records and census data, we find that the program: (1) increased the supply of psychologists, with minimal effect on average hours worked per psychologist; (2) increased the likelihood of psychologists working in non-metropolitan areas, supporting broader access to mental healthcare; and (3) raised psychologists’ annual personal incomes.