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

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  • Carol Propper
  • John Van Reenen

Abstract

In many sectors, pay is regulated to be equal across heterogeneous geographical labor markets. When the competitive outside wage is higher than the regulated wage, there are likely to be falls in quality. We exploit panel data from the population of English hospitals in which regulated pay for nurses is essentially flat across the country. Higher outside wages significantly worsen hospital quality as measured by hospital deaths for emergency heart attacks. A 10 percent increase in the outside wage is associated with a 7 percent increase in death rates. Furthermore, the regulation increases aggregate death rates in the public health care system. (c) 2010 by The University of Chicago. All rights reserved.

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  • 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, April.
  • Handle: RePEc:ucp:jpolec:v:118:y:2010:i:2:p:222-273
    DOI: 10.1086/653137
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    More about this item

    JEL classification:

    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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