Workforce Impacts of Subsidised Mental Healthcare: Evidence on Supply, Earnings, and Geographic Distribution

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, earnings, and location of practising psychologists. Using a difference-in-differences approach with census data and Australian Tax Office records, we find that the program: (1) increased the supply of practising psychologists by 47% within five years, with minimal effect on average hours worked per psychologist; (2) raised psychologists’ annual personal incomes by 17%; and (3) increased the likelihood of psychologists working in non-metropolitan areas by 8%, supporting broader access to mental healthcare.