The effect of Certificate‐of‐Need laws on physician earnings and labor supply

Despite considerable research on Certificate‐of‐Need (CON) laws in healthcare provision, there is limited evidence on healthcare providers' labor market responses to these laws. Using data from the American Community Survey between 2005 and 2019, I show that physicians in CON states earn approximately 2.5%–3% less than physicians in non‐CON states and are less likely to be self‐employed. This occurs despite no differences in hours worked or alternative measures of labor supply. Next, I use variation from the Affordable Care Act Medicaid Expansion as a demand shock to examine how physician earnings and labor supply respond in CON and non‐CON states. While I observe no differences in earnings and hours worked, I find higher rates of self‐employment and lower rates of part‐time work in CON states compared to non‐CON states. The difference in earnings without corresponding differences in hours worked suggests that CON laws add frictions to the labor market. More importantly, the Affordable Care Act analysis revealing differences in self‐employment and part‐time work indicates that these rigidities prevent adequate provider response to changing market conditions.