Adverse Selection and Career Outcomes in the Ethiopian Physician Labor Market

This paper uses a newly collected dataset on Ethiopian physicians to shed light on the allocative efficiency of the physician labor market. We use a lottery mechanism by which medical school graduates are assigned to their first jobs to identify the long-term impact of being posted to a rural area instead of the capital, Addis Ababa. We find that physicians who are assigned to Addis are more satisfied with their initial and their current jobs. However, being assigned to the capital through the lottery does not appear to have significant long-run career benefits. This appears to be partly because relatively high ability physicians opt out of the lottery and find jobs in Addis, where they successfully compete with those assigned by the lottery for specialized training. We also find evidence of adverse selection in the market for physicians who initially participated in the lottery, compared with the market for physicians who did not. We rationalize these findings by suggesting that the lottery, by explicitly randomly assigning new graduates, obfuscates information about them that future employers would otherwise find valuable. High ability workers from the lottery do relatively worse later in their careers than their counterparts who did not take part in the lottery, and are more likely to exit the physician labor market in Ethiopia. Our results suggest that using a lottery to assign new physicians to jobs could compromise the future allocative efficiency of the labor market, and even contribute to the medical brain drain. This is not because the long-term impacts of getting a "bad" are negative, but because the lottery makes it difficult for good physicians to signal their quality.