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

Hall, Emma, Propper, Carol and Van Reenen, John (2008) Can pay regulation kill? Panel data evidence on the effect of labor markets on hospital performance. 843. London School of Economics and Political Science, Centre for Economic Performance, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2008 E. Hall, C. Propper and J. Van Reenen
Library of Congress subject classification: H Social Sciences > HG Finance
H Social Sciences > HD Industries. Land use. Labor
Journal of Economic Literature Classification System: J - Labor and Demographic Economics > J4 - Particular Labor Markets > J45 - Public Sector Labor Markets
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.
I - Health, Education, and Welfare > I1 - Health > I18 - Government Policy; Regulation; Public Health
F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Departments > Economics
Research centres and groups > Centre for Analysis of Social Exclusion (CASE)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 843
Date Deposited: 21 Feb 2008
URL: http://eprints.lse.ac.uk/3282/

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