What factors affect physicians' labour supply: Comparing structural discrete choice and reduced-form approaches

Area of Science:

• Health Economics
• Labor Economics
• Medical Workforce Analysis

Background:

• Understanding physician labor supply responses to compensation is crucial for healthcare workforce planning.
• Existing research offers limited insights into how physicians adjust their work hours based on wage changes.

Purpose of the Study:

• To estimate wage elasticities for physicians using both structural and reduced-form approaches.
• To analyze the impact of different utility functions on wage elasticity estimates.
• To examine physician labor supply responses at the intensive margin.

Main Methods:

• Utilized a structural discrete choice model with quadratic, translog, and box-cox utility functions.
• Employed a reduced-form approach for comparison.
• Analyzed a large dataset of Australian general practitioners (GPs) and specialists, stratified by gender.
• Simulated the effects of wage increases on full-time equivalent physician supply.

Main Results:

• All models consistently predicted small, negative wage elasticities for male and female GPs and specialists.
• Translog and box-cox utility functions provided superior model fit compared to the quadratic function for this population.
• Simulations indicated that a 5-10% wage increase would slightly decrease the full-time equivalent supply of male GPs, and to a lesser extent, male specialists and female GPs.

Conclusions:

• Physician labor supply is relatively inelastic to wage changes, even with significant compensation increases.
• The findings suggest that economic incentives have a limited effect on physician work hours, particularly for high-earning professionals.
• Policy implications relate to workforce planning and understanding the nuanced responses of different physician groups to financial stimuli.