Centre for Economic Performance (CEP)


Public Sector Productivity

hospital staff

Recent work on Public Sector Productivity

We know little about the determinants of public sector productivity compared to private sector productivity.

We have focused on health, education and the police (see also the Education and Skills Programme). The health sector is an area of particular attention where we have investigated the impact of pay on the supply of nurses, the role of human resources in delivering a better quality of healthcare, and the role of competition and management practices in the population of English hospital trusts.

  • Health: Competition, Management and Quality

    We have investigated the causes of the huge variation in the productivity and quality of hospitals. One factor appears to be the pay regulation system. Since nurse pay varies little between high cost areas (like London) and low cost areas (like the North East), it is unsurprising that London has much more serious problems in retaining high quality staff. We show that this leads to greater death rates in London and the South East.

    Further reading:
    Can Pay Regulation Kill? Panel Data Evidence on the Effect of Labour Markets on Hospital Performance - Carol Propper and John Van Reenen, Journal of Political Economy (2010)

    Can pay regulation kill? Evidence from English hospital trusts - This is a non-technical report by Carol Propper and John Van Reenen (2008)

    We are looking in detail at management practices in the public sector using our management survey tool developed at the CEP. We have shown that greater competition between English public sector hospitals has improved management quality, efficiency and clinical outcomes.

    Further reading:
    For a summary of the management work by Nick Bloom, Carol Propper, Stephan Seiler and John Van Reenen, see the CentrePiece article Free to choose? The impact of healthcare reform.

    For the full report, read The Impact of Competition on Management Quality: Evidence from Public Hospitals.

    Zack Cooper, Stephen Gibbons, Simon Jones and Alastair McGuire (2011) study whether competition has led to improvements in hospital quality (measured using mortality from acute myocardial infarction). They find that after the reforms were implemented, mortality fell (i.e. quality improved) for patients living in more competitive markets.

    Further reading:
    Does Hospital Competition Save Lives? Evidence from the English NHS Patient Choice Reforms - this has subsequently been published in the Economic Journal, 2011.

    Other work by the same co-authors looked at the impacts of patient choice on efficiency (measured as length of stay for hip replacement surgery). They found that competition shortened patients' length of stay without compromising patient outcomes or changing the patient mix (to healthier, wealthier or younger patients).

    Further reading:
    Does Hospital Choice Improve Efficiency? An Analysis of the Recent Market Based Reforms to the English NHS.

    Generally this work supports the policies pursued since the mid-2000s to increase competition between hospitals and expand patient choice. Zack Cooper discusses the implications of this work for the recent controversies over NHS reforms in the 2010 Centrepiece article, The NHS White Paper: evolution or revolution?

  • Universities

    We are interested in the role of universities in affecting innovation and economic performance in the local area. Sharon Belenzon and Mark Schankerman (2007) have studied the impact of private ownership, incentive pay and local development objectives on university licensing performance. They find that private universities are much more likely to adopt incentive pay than public ones, but ownership does not affect licensing performance conditional on the use of incentive pay. Adopting incentive pay is associated with about 30-40 percent more income per license.

    Further reading:
    The Impact of Private Ownership, Incentives and Local Development Objectives on University Technology Transfer Performance - subsequently published in the Journal of Law and Economics, 2009.

    An important issue is, of course, the appropriate incentives that scientists have to license their innovations. If the university offers little license income to the academics it is unsurprising that they will have little incentive to license.

    Further reading:
    Incentives and Invention in Universities - by Saul Lach and Mark Schankerman (2007).

  • Police and Crime

    Luis Garicano and Paul Heaton have examined the role of ICT and organization in affecting productivity in the US police force. They find that IT alone is not associated with improved productivity (e.g. lower crime rates), but must be complemented with particular organisational and management practices to improve productivity.

    Further reading:
    Information Technology, Organization, and Productivity in the Public Sector: Evidence from Police Departments - this has subsequently been published in the Journal of Labour Economics, 2010.

    Other work on police and crime is summarised in the Community Programme.

  • The value of lobbying governments

    Jordi Blanes i Vidal, Mirko Draca and Christian Fons-Rosen (2010) study the movement of individuals from the civil service into lobbying in Washington (termed the 'revolving door') which is regarded as a major concern for policy-making. They study how ex-government staffers benefit from the personal connections acquired during their public service.

    Lobbyists with experience in the office of a US Senator suffer a 24% drop in generated revenue when that Senator leaves office. Consistent with the notion that lobbyists sell access to powerful politicians, the drop in revenue is increasing in the seniority of and committee assignments power held by the exiting politician.

    Further reading:
    Revolving Door Lobbyists.

    This is also discussed in a UK context in a more recent Centrepiece article, in brief...The returns to lobbying