Friday, July 15, 2011

Are U.S. Doctors Overpaid?

From Professor Christopher Conover at the American Enterprise Institute blog.

I’ve always known that doctors have a lower ROI on education than MBAs, for example, but I did not know it went all the way back to 1990, and (presumably) a good number of years before that. A related question that might be one way to address the question of the high share of health spending in GDP in the U.S. versus other countries might be to look at the cross-section of ROIs for different professions, rather than the longitudinal (time-period) ROI within the U.S.

To put it another way: The labor value of professionals is very difficult to measure. Many physician specialties (especially GPs) are limited in their ability to increase productivity. However, because the U.S. has been (until the last few years) more economically free than most other developed countries in Europe, Canada, Australia, etc., managerial professionals have been able to increase their productivity relatively faster in the U.S. than those countries.

Ergo, we may observe that the ROI gap between medicine and other professionals has increased faster in the U.S. than other countries. Nevertheless, if it is driven by productivity, professor Baumol’s insight leads us to conclude that physician pay in the U.S. must become increasingly higher than physician pay in other developed countries to compensate, thereby contributing to the higher share of GDP on health spending.

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