Can pay regulation kill? Panel data evidence on the effect of labor markets on hospital performance

Emma Hall, Carol Propper and John van Reenen

No 13776, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Labor market regulation can have harmful unintended consequences. In many markets, especially for public sector workers, pay is regulated to be the same for individuals across heterogeneous geographical labor markets. We would predict that this will mean labor supply problems and potential falls in the quality of service provision in areas with stronger labor markets. In this paper we exploit panel data from the population of English acute hospitals where pay for medical staff is almost flat across the country. We predict that areas with higher outside wages should suffer from problems of recruiting, retaining and motivating high quality workers and this should harm hospital performance. We construct hospital-level panel data on both quality - as measured by death rates (within hospital deaths within thirty days of emergency admission for acute myocardial infarction, AMI) - and productivity. We present evidence that stronger local labor markets significantly worsen hospital outcomes in terms of quality and productivity. A 10% increase in the outside wage is associated with a 4% to 8% increase in AMI death rates. We find that an important part of this effect operates through hospitals in high outside wage areas having to rely more on temporary "agency staff" as they are unable to increase (regulated) wages in order to attract permanent employees. By contrast, we find no systematic role for an effect of outside wages of performance when we run placebo experiments in 42 other service sectors (including nursing homes) where pay is unregulated.

JEL-codes: I18 J31 J45 (search for similar items in EconPapers)
Date: 2008-02
New Economics Papers: this item is included in nep-hea and nep-lab
Note: LS EH
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published as Carol Propper & John Van Reenen, 2010. "Can Pay Regulation Kill? Panel Data Evidence on the Effect of Labor Markets on Hospital Performance," Journal of Political Economy, University of Chicago Press, vol. 118(2), pages 222-273, 04.

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Related works:
Journal Article: Can Pay Regulation Kill? Panel Data Evidence on the Effect of Labor Markets on Hospital Performance (2010)
Working Paper: Can Pay Regulation Kill? Panel Data Evidence on the Effect of Labor Markets on Hospital Performance (2008)
Working Paper: Can Pay Regulation Kill? Panel Data Evidence on the Effect of Labour Markets on Hospital Performance (2008)
Working Paper: Can pay regulation kill? Panel data evidence on the effect of labor markets on hospital performance (2008)
Working Paper: Can pay regulation kill? Panel data evidence on the effect of labor markets on hospital performance (2007)
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