Tuesday, 23 February 2016

The compensating differential for rural GPs must be enormous

In the news this morning was a story about a Tokoroa GP struggling to recruit a new doctor:
A Tokoroa doctor is struggling to fill a job that offers a young GP the potential to earn an eye-watering $400,000-plus a year - and he will even chuck in half his practice for free...
In the past four months, Dr Kenny has not received a single application for the permanent position, which he believes is due to the perception of a rural general practitioner being a dead-end job.
The 61-year-old said $400,000 after expenses was more than double a GP's average income. But even the prospect of no weekend or night work had failed to attract a taker.
Economists recognise that wages may differ for the same job in different firms or locations. Consider the same job in two different locations. If the job in the first location has attractive non-monetary characteristics (e.g. it is in an area that has high amenity value, where people like to live) then more people will be willing to do that job. This leads the supply of labour to be higher, which leads to lower equilibrium wages. In contrast, if the job in the second area has negative non-monetary characteristics (e.g. it is in an area with lower amenity value, where fewer people like to live) then fewer people will be willing to do that job. This leads the supply of labour to be lower, which leads to higher equilibrium wages. The difference in wages between the attractive job that lots of people want to do and the dangerous job that fewer people want to do is called a compensating differential.

Now, consider the case of this job for a doctor. Even when offering a 100% premium, Dr Kenny isn't able to fill the position. There are a number of ways the compensating differential may arise in this case.

First is the location. Living in urban areas is often more attractive to young people (including presumably young doctors) than living in rural areas. So, a premium is required to overcome that difference (which, admittedly, might not apply to all people).

Second are the job characteristics. Reputedly, working as a rural GP is very hard work, involving long hours, and where it is difficult to take breaks or holidays (or more so than for urban GPs or other doctors). Dr Kenny says as much:
"Last year, I cancelled a holiday because I couldn't get a locum ... and this year I am probably going to have to cancel a holiday ... and it's just tough for me."...
He worked between 8.30am and 6pm without a lunch break.
Again, a premium would need to be offered to make a job with long hours and difficult working conditions attractive.

Third, are firm characteristics. In an occupation like doctors, it would not surprise me if firm's reputations for working conditions are reasonably well-known within the domestic community. So, if a firm has a difficult manager, for instance, it would be less attractive to potential employees and again a premium would need to be offered. I'm not saying that's true in this case, but in theory it is a further source of compensating differentials in wages.

Overall, it appears that a $200,000 premium (plus whatever half of the GP practice is worth) is not enough to compensate potential employees (and co-owners!) for the negative characteristics of being a doctor in Tokoroa.

[Update 24/02/2016]: After the media coverage, many doctors are interested in the position. However they are international, not domestic, doctors. Perhaps the compensating differential for moving from Portugal or Brazil to Tokoroa isn't as large?

Also, the other practice in Tokoroa notes that the stress of owning a clinic is a factor that makes the job less attractive. See my second point above.

No comments:

Post a Comment