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Journal article

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

In many sectors, pay is regulated to be equal across heterogeneous geographical labor markets. When the competitive outside wage is higher than the regulated wage, there are likely to be falls in quality. We exploit panel data from the population of English hospitals in which regulated pay for nurses is essentially flat across the country. Higher outside wages significantly worsen hospital quality as measured by hospital deaths for emergency heart attacks. A 10 percent increase in the outside wage is associated with a 7 percent increase in death rates. Furthermore, the regulation increases aggregate death rates in the public health care system.

Carol Propper and John Van Reenen

1 April 2010

Journal of Political Economy 118(2) , pp.222-273, 2010

DOI: 10.1086/653137

This Journal article is published under the centre's Labour markets programme.