Working Paper: NBER ID: w13776
Authors: Emma Hall; Carol Propper; John Van Reenen
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.
Keywords: Labor Market Regulation; Hospital Performance; Wage Regulation; Health Economics
JEL Codes: I18; J31; J45
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher outside wages (J39) | increased death rates from acute myocardial infarction (AMI) (I12) |
| higher outside wages (J39) | lower hospital productivity (D24) |
| higher outside wages (J39) | reliance on temporary agency staff (J63) |
| reliance on temporary agency staff (J63) | worse health outcomes (I14) |