Can Pay Regulation Kill? Panel Data Evidence on the Effect of Labor Markets on Hospital Performance

Emma Hall, Carol Propper and John van Reenen ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Labor market regulation can have harmful unintended consequences. In many markets, especially for publicsector 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 serviceprovision in areas with stronger labor markets. In this paper we exploit panel data from the population ofEnglish acute hospitals where pay for medical staff is almost flat across the country. We predict that areas withhigher outside wages should suffer from problems of recruiting, retaining and motivating high quality workersand this should harm hospital performance. We construct hospital-level panel data on both quality - as measuredby death rates (within hospital deaths within thirty days of emergency admission for acute myocardialinfarction, AMI) - and productivity. We present evidence that stronger local labor markets significantly worsenhospital outcomes in terms of quality and productivity. A 10% increase in the outside wage is associated with a4% to 8% increase in AMI death rates. We find that an important part of this effect operates through hospitals inhigh 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 effectof outside wages of performance when we run placebo experiments in 42 other service sectors (includingnursing homes) where pay is unregulated.

Keywords: labor market regulation; hospital quality; hospital productivity; skills (search for similar items in EconPapers)
JEL-codes: J45 F12 I18 J31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab and nep-reg
Date: 2008-01
View list of references View citations in EconPapers

Downloads: (external link)
http://cep.lse.ac.uk/pubs/download/dp0843.pdf (application/pdf)

Related works:
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 (2007)
Working Paper: Can pay regulation kill? Panel data evidence on the effect of labor markets on hospital performance (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0843

Access Statistics for this paper

More papers in CEP Discussion Papers from Centre for Economic Performance, LSE
Series data maintained by ().