WEEK1 Flashcards
define the role of the market for labour, and describe how this market is linked to the market for health care workers.
The labor market is the institution by which workers and employers come together to engage in the production of output. As a result of their interactions, the amount of labor that is hired and its compensation are determined
There are a number of health-related issues related to this market. Employers hire and pay workers according to their productivity and in some instances, a healthy worker will be more productive than an unhealthy one. Productivity is a key determinant in the employer’s demand for labor. A second set of issues is related to labor supply: a worker’s health status may influence his or her decision to seek full-time employment, part-time employment, or no employment at all. A third issue is related to total compensation rather than just wages.
Another set of issues related to the labor market deal with the determination of wages and employment for healthcare workers. Physicians, nurses, technicians, and other professionals and workers perform under the vagaries of the healthcare labor market. Numerous issues have arisen in this market, including shortages of nurses and other health professionals, and rising wages for healthcare workers.
describe a model of the demand for labour.
The demand for labour is a derived demand, which is based on the revenue or output that the labour will generate for a firm. In the context of Canadian health care, a firm could be a public health facility, or it could be a private medical clinic. This analysis of the demand for labour involves the value of the marginal product of labour and its relationship to the wage rate for labour.
The demand curve for labour is based upon the additional revenue generated by each unit of labour, also called the value of the marginal product (VMP). As long as the VMP exceeds the wage rate, it is worth hiring additional units of labour. This means that the value of labour’s output is greater than the cost of the labour hired. c. In economic terms, this demand is a derived demand. That is, the firm does not demand labor, or any other input, for itself. Rather, an input is demanded because of the revenue or output it can generate for the firm. In short, the value of an input is derived from the usefulness of the input in achieving some objective. In traditional economic analysis, this objective is profits. Although healthcare firms may indeed have other objectives than profits, the profit maximization hypothesis is a good one to start with in analyzing the demand for labor and other inputs.
describe a market of labour supply, and explain how health insurance benefits are related to the labour supply.
The conclusions of the model are as follows. The individual will increase work time hours from zero as long as the value of lost leisure is less than the wage rate. For example, at the point when the individual has full-time leisure, he or she is willing to give up 10 hours of leisure (work 10 more hours) for $200 in wages, a unit value of $20 per hour. However, once the individual has achieved this new point, he or she will be willing to give up only an additional 8 hours of leisure for an extra $200 in income. This implies a marginal value of leisure of $25 per hour at the new point.
The positive relationship between wages and labor time measures what is called the substitution effect of income for leisure. The substitution effect of a wage increase is the increased incentive to work because work has a relative higher reward than leisure
There is also an income effect, which may offset the substitution effect. The income effect of a wage increase is the increase in purchasing power, enabling the worker to afford more leisure. As the wage rate increases, the total income that the individual can receive will increase, and the individual can purchase more goods and services; the individual will want to spend more leisure time consuming goods and services and hence will want to work less.
The most common way of financing health insurance in the United States is through the payment of health insurance premiums for individuals in the workplace. Health insurance coverage is a component of total worker compensation, which consists of wages plus fringe benefits. From the viewpoint of the individual worker, the amount of total compensation is what influences labor supply.
describe the labour market for nursing personnel, and outline the issues involved in a nursing shortage in Canada.
The Canadian Federation of Nurses Union show that 2013, although wages had improved, working conditions continued to be a concern for nurses throughout Canada. They called for the implementation of a new pan-Canadian strategy and Health Accord in order to provide a predictable and stable health care environment.
In 2002, British Columbia experienced a severe shortage of nurses, which may have been due, in part, to the high wage levels negotiated in Alberta and the flow of nurses from BC to a province with a higher wage level. However, the problem was not just wage levels, but the relatively poor working conditions and the poor level of support provided to nurses working in the field.
In Alberta, the severe budget cutbacks of the early 1990s resulted in many nurses leaving the province or resigning from the nursing profession entirely. Decades later, there is a perception that the province continues to experience the effects.
describe how market power can affect the labour market outcome in the health care sector.
In the past, there have been periods of time when widespread nursing shortages were reported by hospitals. A shortage is a situation in which, at the given wage rate, the quantity of labor demanded exceeds the quantity supplied. Economists have tried to explain shortages by means of economic models. The model of a hospital’s buying power in the market for nurses can be used for this purpose. Assume that there is a single buyer of nursing services, a hospital in a small city. For this single buyer, an economic model is presented to predict pricing and output decisions.
SUPPLIER COSTS
With respect to the supply side of the market, assume there are a number of nurses available to be hired by the hospital (their supply curve is drawn in Figure 11-6). At a wage of $200 weekly, two nurses will supply their services; if the wage is increased to $300, three nurses will supply their services; and so on. With respect to the demand side of the market, the successive marginal value that the single hospital places on nurse
Revenues
. Assume (1) that additional nurses allow the hospital to treat more patients, but the marginal productivity of these extra nurses diminishes; and (2) that the price received for each extra patient by the hospital is constant. The hospital’s value curve has been derived from the estimated additional revenue that the hospital expects the additional nurses will generate. The marginal revenue (equal to the price of output times the marginal output yielded by an extra nursing unit) is $90 for the first nurse, $80 for the second, $70 for the third, and so on. Note that the total value to the hospital of three nurses is $240 ($90 + $80 + $70).
Behavioural Assumption
Finally, we will assume that the hospital wishes to maximize profits.
Equilibrium Wage and Number of Nurses Hired in Monopsonistic Market
The monopsonistic (single-buyer) firm’s marginal cost (MC) for hiring additional nurses is derived from the schedule of nurses in the market. The value of an additional nurse is based on the amount of output that the hospital can produce with nurses (productivity) and the price of the output (the amount of revenue brought in by hiring an additional nurse). The profit-maximizing hospital will continue to hire nurses up to the point where the marginal cost equals the additional revenue from hiring another nurse.
The implications of this model are that the profit-maximizing hospital will hire additional nurses as long as the marginal cost of doing so is less than the additional revenue.
In a monopsonistic (single-buyer) market, fewer nurses would be hired than in a competitive market. In a competitive market, competitive forces would drive the wage up to the level at which supply equals demand; more nurses would be hired, and wages would be higher. However, a monopsonistic buyer can prevent more nurses from being hired thus maintaining its profits. At the same time as it depresses wages, it creates a restriction in supply.
describe how health status affects workers’ levels of compensation.
Factors that influence the labour market include the workers’ level of health and the perceived risk of various occupations. Workers who are in good health are more likely to be employed on a full-time basis, and they are also more likely to remain employed. On the other hand, workers who are in poor health are more likely to accept part-time employment, and they are less likely to remain in full-time positions.
Poor health status will shift the supply curve to the left, which may contribute to increasing wage levels for those remaining in this labour market. High-risk occupations tend to reduce the supply of labour available within that occupation, which tends, ceteris paribus (all other factors being equal), to lead to the high wage levels in high-risk occupations.
Good health will increase the likelihood that a worker will be employed and that a worker who is employed will work longer hours (e.g., will accept full-time rather than part-time employment). In terms of the competitive labor market model, poor health will shift the labor supply curve to the left. At any given wage rate, the quantity of labor supplied will be reduced when health status is decreased. Looking at the workings of the entire market, a reduction (leftward shift) in the supply of labor will reduce the overall amount of employment and increase the wage rate of those who continue to participate in the market.
