Analyzing Markets for Health Workers: Insights from Labor and Health Economics

CHAPTER 1

Introduction

The aim of this publication is to examine how labor and health economics can be used to analyze and better understand the role and functions of health worker labor markets. Health workforce shortages stem not only from inadequate overall supply, but also from suboptimal allocation of health human resources by location and role. Low performance and productivity are also issues. These three problems are often compounded by a resource problem—the gap between the finances required for an adequate workforce and those likely available. The application of labor economics to health care labor markets needs to account for the specific institutional features and market failures in health care.

Policy responses to shortages of health workers in low- and middle-income countries (LMICs) have to date almost exclusively focused on addressing shortages through scaling up interventions that increase the supply of health workers. This assumes that more health workers are a cost-effective way to improve the population’s health.

Though training and numbers are clearly an issue, it is also vital to ensure that the health workers already employed are used to their best effect, are productive, and are employed at reasonable cost; and that those newly trained are retained and encouraged to provide cost-effective treatments and procedures in specialties and geographic areas where the need for health care is high. These should be key objectives of health human resource policy, taking account of the ethical and equity issues surrounding health workforce migration between countries and between urban and rural areas within a country.

Pure scaling up largely ignores the potential contribution of labor and health economics in understanding how health worker labor markets function. An economic approach to labor markets is fundamental in fully understanding issues of health workforce shortages, productivity, and performance, and the appropriate policy responses.

The issues can be categorized into four problems: quantity, allocation, performance, and resources (Andalon and Fields, forthcoming). Health workforce shortages are due not only to inadequate overall supply (the quantity problem), but also to a suboptimal allocation of health human resources in a range of interdependent submarkets (the allocation problem), notably between:

• geographic areas within and between countries, including urban–rural imbalance and migration;

• public and private sectors, including issues arising from dual practice;

• medicine, nursing, and other health workers—skill mix;

• medical specialties—generalist, primary, community-based care versus specialist care; and

• treatment settings—primary care, outpatients, acute care hospitals, and informal care at home.

Low performance and productivity are also often issues. If they were increased, fewer health workers would be required and health outcomes improved.

These three issues are often compounded by the resource problem—the gap between the finances required to expand the workforce to the required degree and those available in the near future.

The aim of this document is to examine how labor and health economics can be used to analyze and better understand the role and functions of health worker labor markets. It draws on the framework of labor economics (Andalon and Fields, forthcoming; Scheffler et al. 2012) and the insights of health economics to provide a conceptual framework that can contribute to guiding more appropriate and effective analysis and data collection related to the health workforce. The conceptual framework of labor economics has been highlighted in publications by the World Bank and World Health Organization (WHO) (Andalon and Fields, forthcoming; Scheffler et al. 2012). This publication goes several steps further by reviewing the types of analysis and data requirements necessary to apply this framework to health workforce issues in LMICs in more depth than has been undertaken previously.

The application of labor economics to the analysis of general labor markets is often different from the application of labor and health economics to the analysis of health workers’ labor markets (box 1.1). This is largely due to the different set of policy and institutional issues that drive theoretical and empirical research in labor and health economics. Often the application of labor economics to health care labor markets ignores the particular institutional and market features of health care labor markets. What labor and health economics do share is a common set of microeconomic theory and micro-econometric empirical methods and tools to analyze labor market issues.

Box 1.1 Labor and Health Economics

Labor economics is a large field of economics that provides a framework for understanding how labor markets work. Only a handful of its concepts and tools, however, have been applied to health worker labor markets.

The theoretical and empirical approaches in traditional labor economics deal with issues and market imperfections in aggregate, that is, the whole labor market. Some of these topics are less relevant to health workers as they focus on low-income workers and unemployment, minimum wages, wage inequality, and trade unions.

Other topics have been little analyzed in health care because the issues faced by health workers are assumed to be no different from those faced by other workers. Examining one or two specific health care occupations is unlikely to inform broad economic policy. These topics include gender discrimination, immigration, human capital development, and skills formation. Such topics are largely driven by broader economic objectives, notably raising employment and productivity, and thus economic growth.

The drivers of, and therefore interest in, health workforce policy are different. Though the benefits of achieving these broader economic objectives are also important for a productive health care sector, improvements in health status are valued independently of these objectives. Better health status indeed leads to gains in employment and economic growth, but is valued in its own right as a separate objective, sometimes called extra-welfarism in the health economics literature (Hurley 2000).

The policy drivers of health workforce reform in health care are a seemingly persistent mismatch between need and existing supply of health care services, including health workers. The issues are broader than a focus on health worker labor markets and include the efficiency and distribution of health care organizations. This leads to a natural focus on health worker labor markets given the labor intensive nature of health care production. As we will see in chapter 3, because demand cannot easily be defined in health care due to market failure, concepts of medically defined need dominate, which may be unrelated to willingness to pay and patients’ preferences. This leads to the impression in health care that there are never enough resources to meet this need, and that all needs should be met. There is little consideration of resource scarcity.

These particular features of labor and product markets in health care have meant that the analysis of health labor markets has taken a different direction from that of wider labor markets. For example, asymmetry of information between doctors and patients has led, in health economics, to a focus on principal–agent relationships, optimal incentive contracts, specific areas of information and organizational economics, and the effect of different methods of remuneration on productivity and performance, rather than the level of wages (a central focus of labor economics).

Asymmetry of information has also led to a focus on doctors. As doctors are self-employed in many countries, traditional labor market analyses of salaried workers and labor demand and supply have been supplanted by the theoretical and empirical analysis of the behavior and productivity of groups of health workers in teams and firms, in, for example, private medical groups (small firms) or hospitals. A key practical aspect of labor market analysis in a particular country is therefore whether workers are salaried (usually in the public sector) or self-employed (in the private