Friction Cost

Definition

Health Economics

  • Friction cost is the name given in cost-effectiveness and cost-utility analyses to the loss of productive work time that is incurred between the time that an employee is absent from work through accident or sickness and their replacement by another. It is a form of productivity cost. Some studies in these genres, particularly early ones, used the human capital approach in assessing the benefits of health care and tended to assume that replacement took place only when the injured/sick employee returned to work. The friction cost approach recognizes that there is usually more than merely frictional unemployment in any economy - that is, there is involuntary unemployment too - and this pool of potential workers may have the effect of substantially reducing the time for which a job is vacant. From a societal perspective, these costs, it should be noted, do not include the expenses incurred by firms in paying 'sick pay' and the like, which are transfers and not opportunity costs.
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