Cost of Stress on the U.S. Economy Is $300 Billion? Says Who?

Young businesswoman working in office | Credit: BJI / Lane Oatey
Young businesswoman working in office | Credit: BJI / Lane Oatey

In 2011, I wrote an article about the true cost of job stress. In that article, I cited Dr. Rebecca Goldin (a Professor at George Mason University and Director of STATS.org) throughout and shared Dr. Goldin’s observations about the American Institute of Stress’ baseless claim of the $300 billion price tag of stress on the U.S. economy.

Today’s 2016 article is a supplement to the 2011 article, and includes additional information and supporting references.

First, the original URL link to Dr. Goldin’s “Counting the Costs of Stress” article on the stats.org website is no longer valid. I’ve reached out to Dr. Goldin to see if her article is posted elsewhere but did not hear back from her. Luckily, I had saved a PDF copy of the article and have posted it to my own website. Citations to Dr. Goldin’s 2004 article will now to point to a PDF of the article [hosted on my own website] rather than to an invalid URL on the stats.org website.

Second, I’ve located a copy of Dr. Paul Rosch’s 2001 newsletter in which he explained his rationale for how he arrived at the $300 billion price tag. According to Dr. Rosch (2001), via the American Institute of Stress, job stress is estimated to cost U.S. industry more than $300 billion a year in absenteeism, turnover, diminished productivity, and medical, legal and insurance costs.

Rosch also wrote in the International Stress Management Association newsletter (2001): “Job stress is estimated to cost American industry $300 billion a year from absenteeism, employee turnover, diminished productivity, workers compensation awards and other legal expenses, direct medical and insurance costs, etc.”

In his 2001 Health and Stress newsletter, Dr. Rosch wrote [emphasis added for readability]:

Job stress is estimated to cost American industry in excess of $300 billion a year. When [Dr. Rosch] started writing about this subject over twenty years ago the price tag for job stress was pegged at $150 billion annually and ten years ago it was claimed to be $200 billion. The $300 billion figure posted on our [American Institute of Stress] website has attracted a large number of inquiries over the past several years, particularly from reporters. Most people want to know if this is based on a formula or series of calculations with scientific underpinnings that have statistical significance as opposed to a personal estimate that was picked out of thin air. The answer is as follows: In 1979, Albrecht postulated an annual 4 percent rate of absenteeism and a 5 percent turnover rate in a company with 1000 employees. He assumed that 2 percent of all absences and turnovers were due to stress and that it would cost $1000 for recruitment and training for each turnover. In addition, there would be a 5 percent need for overstaffing to compensate for associated problems. Based on these figures, which were considered to be quite conservative at the time, he estimated that the hidden costs of stress to U.S.companies were $150 billion annually. That was over two decades ago and absenteeism and turnover rates have now almost doubled as have their expenses.”

Rosch added that Albrecht’s calculations did not include the cost of accidents, diminished productivity, direct health insurance, medical, legal and workers compensation costs.

It’s important to point out that Rosch incorrectly explained in his newsletter that Albrecht used a company with 1,000 employees. It was actually 2,000 people (1986, p. 128).

Third, let’s take a deeper dive into how Dr. Karl Albrecht came up with the $150 billion price tag for stress. This passage from Albrecht’s book (1986 [paperback edition]) is especially worth noting:

“Any attempt to estimate a dollar cost of chronic stress in a business organization or in American business in general, would of course involve gross guesswork and speculation. That’s what I [Albrecht] have done (brazenly) in this section. As an intellectual challenge . . . let’s make some crude assumptions about stress effects in a hypothetical business organization and see what the bottom line impact might be” (p. 128).

Albrecht’s hypothetical organization in 1979:

Size: 2,000 people
Sales: $60 million/year
Profit: 5% = $3 million/year
Avg. salary (gross avg. for all employees): $6.00/hour
Personnel cost (salary + overhead costs): $100/person-day
Absentee rate (excluding vacation): 4% = 10 days/person-year
Turnover rate (assume stable workforce size): 5% = 100 people/year
Turnover cost (advertising, hiring, processing, etc.) $1,000/person

Albrecht explained that he took a conservative estimate in determining absenteeism (4%), turnover (5%), and personnel costs ($100/person-day).

For the 4% absenteeism rate, Albrecht speculated that 2% came from unavoidable disabilities and 2% came from stress. “In this 2% figure we include any genuine illness that is stress-induced as well as effects of life stress that may originate outside the job [emphasis added]” (Albrecht, 1986, p. 130).

For the 5% turnover rate, Albrecht speculated that 3% was the result of retirement and voluntary (i.e. quitting) and involuntary turnover (i.e. fired). The other 2% turnover is assumed to arise from stress-related causes which includes “life stress originating outside the job [emphasis added] that interferes with the person’s ability or inclination to remain on the job” (Albrecht, 1986, p. 130).

Albrecht also added an overstaffing ratio (5%). “5% of the work force (sic), or 100 people, are on the payroll because of the reduced performance of the others” 1986, p. 131). He justified this overstaffing ratio in this manner: “if a large proportion of people experience stress levels that degrade their performance capabilities, then we will need more people to get a given amount of work done — and to achieve a given level of sales and profits in our hypothetical company — than we otherwise would” (Albrecht, 1986, p. 131).

And if that weren’t enough, Albrecht tacked on the cost of antisocial acts (“theft, sabotage, deliberate waste or breakage, ‘invisible’ slow downs, and the like”) [Albrecht, 1986, p. 131]. For these antisocial acts (e.g., theft of a machine and “temper tantrum that results in a broken window or a damaged typewriter” (p. 131), Albrecht admitted that “we have no way of knowing which of these costs are stress-linked and which are simply isolated events [emphasis added]” (1986, p. 131).

The result looks like this for stress-linked personnel costs according to Albrecht:

Stress-linked absenteeism: $1 million/year
Stress-linked turnover: $40,000/year
Performance degradation (overstaffing cost): $2.5 million/year
Antisocial acts: $20,000/year
TOTAL $3,560,000/year

Even though Rosch might not have come up with the $300 billion price tag “out of thin air,” the source (Albrecht’s book) from which he based his calculations is quite unconvincing. In fact, Albrecht even admitted as much. Despite his own initial warning to not guess or speculate a dollar amount on the cost of stress, Albrecht marched right into speculation and guesswork.

Albrecht’s original estimate/guesstimate of cost of stress on organizations (1979) was derived from taking a hypothetical firm and extrapolating the cost of stress per person for that firm to 80 million U.S. workers: $1,780 (total stress cost divided by number of employees) x 80 million = $142.4 billion (“a national cost figure for stress-induced loss of effectiveness and efficiency approaching $150 billion no longer seems unbelievable” [Albrecht, 1986, pp. 132-133]).

So Rosch cited Albrecht’s $150 billion price tag from 1979, then modified that original amount (sometime around 2001) by doubling the $150 billion to $300 billion, and (almost) everyone (the general public, the media, writers/authors, professors, and researchers) jumped onboard and accepted it as a certainty.

The undeniable truth is this: Two men made up those numbers ($150 billion & $300 billion) in an attempt to guesstimate the cost of stress. Albrecht, the first man in 1979, “brazenly” made lots of “crude assumptions” and came up with an arbitrary number as an “intellectual challenge.” Roughly two decades later, Rosch, the second man, then based his calculations off the “crude assumptions” of the first (Albrecht). Thus, whatever number Rosch arrived at is pointless because it does not have anything to stand on. Albrecht offered sage advice in his book: “Any attempt to estimate a dollar cost of chronic stress in a business organization or in American business in general, would of course involve gross guesswork and speculation.” Unfortunately, no one, including Albrecht himself, followed that nugget of wisdom.

Written By: Steve Nguyen, Ph.D.
Leadership Advisor & Talent Consultant

References

The American Institute of Stress. Workplace Stress. Retrieved from http://www.stress.org/workplace-stress/

Albrecht, K. (1979). Stress and the manager: Making it work for you. Englewood Cliffs, NJ: Prentice-Hall.

Albrecht, K. (1986). Stress and the manager: Making it work for you. New York: Simon & Schuster.

Goldin, R. (2004). Counting the costs of stress. STATS.org.

International Stress Management Association (ISMA-USA). (2001) Newsletter. Vol. 3. Issue 1. [PDF]

Rosch, P. J. (2001, March). The quandary of job stress compensation. Health and Stress, 1-8.