Abstract
The medical workforce is important based merely on its size and takes on even greater importance given the influence physicians, nurses, dentists, and pharmacists have on patient treatment. On the supply side, most governments regulate health professions to assure that the inputs into the health production function are of sufficiently high quality. But such regulation can also cause harm. This article examines the supply and demand for medical labor and the effects of the market failure and government intervention. We begin by examining the supply side, describing a medical labor market with no market failures. We enumerate the various market failures that justify government regulation and discuss the implications of regulation on medical labor and consumers. We then examine several possible explanations for the persistent variation in medical labor productivity across markets and organization forms, including government regulation, differences in reimbursement incentives, politics, the effect of incentives to manage people within organizations, human resources management, and motivated agents. We end by suggesting some potential areas for future research.
Outline
- Introduction
- Perfectly Functioning Medical Labor Markets
- Labor Supply Topics
- Labor Demand Topics
- Areas for Future Research
1. Introduction
The medical workforce is important based merely on its size. Almost 14 million people were employed in the US health care delivery sector in 2010, for example, which represents 10.6 percent of the country’s total employment (Altarum Institute, 2010). Health professions take on even greater importance when one considers the influence physicians, nurses, dentists, and pharmacists have on treatment decisions in their roles as patients’ agents.
Health professions are regulated in most countries, either directly by the government or by a sanctioned non-government organization. The principal reason for regulation is that because of asymmetric information consumers may not be able to determine the quality of services provided by the medical workforce (Arrow, 1963). The objective is to assure consumers that the inputs into the health production function are of sufficiently high quality. Regulation typically consists of some combination of required licensing, certification, accreditation for universities providing the degrees, and subsidized medical education. In the United States and United Kingdom, for example, about 81 percent and 73 percent, respectively, of the workforce in the health care delivery sector are legally required to have a license before working.
Regulating health professions can also cause harm by placing constraints on the health production function, reducing product variety and increasing wages due to restricted entry. Many governments allow professional organizations to define and control the nature of the regulation and, in some cases, to explicitly determine the number of people allowed to enter the profession or a specialty within the profession. This creates the appearance that the medical workforce is restricting entry to create and sustain rents.
The productivity of the medical workforce appears to vary substantially between providers within the same market. These differences in labor productivity are persistent, which suggests that the market does not induce firms to all configure production in the most efficient way. This raises the question of whether certain labor demand factors may explain these persistent productivity differences.
This article is organized as follows. In section 2 we describe a medical labor market with no market failures, using physicians as an example. We enumerate the market failures that justify government regulation in section 3, and then discuss the implications of regulation on medical labor and consumers. In section 4 we examine several possible explanations for the persistent variation in medical labor productivity across markets and organization forms, including government regulation, differences in reimbursement incentives, politics, the effect of incentives to manage people within organizations, human resources management, and motivated agents. We suggest some potential areas for future research in section 5.