10.3 The Opportunity Cost of Health Sector Employment in US and Other G7 Counties

Module by: Christopher Conover. E-mail the author

Summary: Whether the opportunity cost of health sector employment in the United states is more or less than in the rest of the G7 depends on how it is measured.

Health expenditures are not a good measure of whether the burden of medical care is more or less in the United States, compared with its major competitors. If markets are less competitive in health care due to regulation or other forces, this will result in higher prices. Thus, for each unit of resources used (for example, an hour of labor), spending might be more in medical care than if the identical resource were used elsewhere in the economy. Briefly, spending might be much more than costs.

However, because higher prices result in income to someone (for example, doctors, drug company shareholders), decreasing the medical prices might change the distribution income in the economy. Nevertheless, it will not make Americans better off in the aggregate (every dollar of income "won" by buyers would be matched by a corresponding loss by the sellers of medical services).

Two methods provide an approximate measure of the opportunity cost of health services labor across countries. One approach calculates the percentage of the population employed in health care. This method assumes that the cost to any economy of diverting a worker into the health care sector is approximated by GDP per worker in that economy. However, this would be a poor approximation for doctors, whose value to the economy presumably would be much higher than average GDP per employee even if they were employed elsewhere. Taking this into account — by weighting employment by the average ratio of doctor compensation to nurse compensation in the countries shown in figure 10.3a — the U.S. share of employment is higher than in its competitors, but not by much.

Another approach assumes that the opportunity cost of health workers is the same elsewhere as in the United States. When applying U.S. prices to the number of physicians, nurses, and other workers, the opportunity cost of medical labor is lower in the United States than in any of its major competitors (figure 10.3b). That is, after accounting for the higher prices paid for medical labor in the United States, the level of potential output these nations give up to produce health care is greater than in the United States.

Neither of these exactly measures U.S. comparative performance. However, the truth is likely to fall somewhere in between these estimates.

References

Content actions

Add module to:

My Favorites Login Required (?)

'My Favorites' is a special kind of lens which you can use to bookmark modules and collections. 'My Favorites' can only be seen by you, and collections saved in 'My Favorites' can remember the last module you were on. You need an account to use 'My Favorites'.

| A lens I own Login Required (?)

Definition of a lens

Lenses

A lens is a custom view of the content in the repository. You can think of it as a fancy kind of list that will let you see content through the eyes of organizations and people you trust.

What is in a lens?

Lens makers point to materials (modules and collections), creating a guide that includes their own comments and descriptive tags about the content.

Who can create a lens?

Any individual member, a community, or a respected organization.

What are tags?

Tags are descriptors added by lens makers to help label content, attaching a vocabulary that is meaningful in the context of the lens.

Footer

This work is licensed by Christopher Conover under a Attribution (CC-BY 3.0), and is an Open Educational Resource.

Last edited by Jia Yao on Sep 27, 2013 1:22 pm -0500.