Skip to main content
Article thumbnail
Location of Repository

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

By Emma Hall, Carol Propper and John Van Reenen


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

Topics: HG Finance, HD Industries. Land use. Labor
Publisher: London School of Economics and Political Science, Centre for Economic Performance
Year: 2008
OAI identifier:
Provided by: LSE Research Online

Suggested articles


  1. (2003). An Integrated Analysis of Nurse Staffing and Related Variables:
  2. (2000). Comparing the Quality of Health Care Providers.” doi
  3. (2007). Geographically differentiated pay in the labor market for nurses.” doi
  4. (2007). Human Capital and Relational Capital in the Nursing Workforce: An Analysis of their Impacts on Patient Outcomes, mimeo, doi
  5. (2002). Keeping nurses at work: a duration analysis”. doi
  6. (2002). Nurse-Staffing Levels and the doi
  7. (2005). The supply of qualified nurses: a classical model of labor supply.” doi
  8. (2002). Will increased wages reduce shortages of nurses? A panel data study of nurse labor supply.” Working Paper

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.