I’m a little leery about proclamations in the media about shortages. Shortages occur when supply cannot keep up with demand, and in a free market true shortages are brief. Remember the Wii shortages a few years back? People were snapping the video games up and selling for a tidy profit on eBay. But the shortage lasted only a few weeks. After Christmas 2006 Nintendo had produced enough to meet demand and now one can find the console just about anywhere, often for a discount.
In a free market anything that is experiencing a shortage becomes more expensive because demand outstrips supply. Ask Debeers. They control an entire industry by keeping supply below demand. As individuals try to get am item experiencing a shortage, they are willing to pay more for it. Others do the same, and the price rises. A shortage only ends when the supply outstrips demand: either the supply is increased or the demand is decreased. Oil at $140/barrel won’t last because oil substitutes like ethanol and oil-from-shale become viable at that price point. They siphon off demand for oil which then leads to an overhang of supply. The scramble by buyers to pay more than others becomes a scramble by sellers to sell for less than other sellers, and the price falls.
Although labor is not a commodity like oil, gold or bushels of corn, it is subject to free market principles. In autumn 2001 in the depths of the 9-11 Recession, a lobbyist group for the tech industry convinced Congress that there was a labor shortage in IT workers. They did this to encourage Congress to allow in foreign workers on the H-1b visa. Because visa stipulations made it difficult to switch jobs while on the H-1b, employers were able to hire foreign workers at a fraction of Americans.
Since the Internet Bubble burst in 2000, IT salaries were declining naturally because there were fewer positions open for qualified candidates. In addition many technical staff had gotten into IT to meet the demand for the Y2K Bug and had lost their jobs after the work dried up in early 2000. Add in the offshoring boom which further decreased the number of open positions, and you have a “perfect storm” that changed the IT sector in the United States forever. IT salaries have yet to stabilize and won’t until the number of people leaving the field outnumber those entering it on visas or through graduation from CompSci programs. The IT industry got what it wanted: an underpaid overqualified labor pool.
We are hearing the same drumbeat of shortages when it comes to Primary Care Physicians. “Experts warn there won’t be enough doctors to treat the millions of people newly insured under the law. At current graduation and training rates, the nation could face a shortage of as many as 150,000 doctors in the next 15 years, according to the Association of American Medical Colleges,” an article in the Wall Street Journal reports. Yet in the same paper, former Clinton Labor Secretary Robert Reich reports “Among those with jobs, more and more have accepted lower pay and benefits as a condition for keeping them. Or they have lost higher-paying jobs and are now in new ones that pay less. Or new hires are paid far lower wages than the old.” Interestingly, Reich was one who accurately predicted the collapse in tech wages and the danger posed by labor importation as early as 1995.
Allied Physicians, a doctor placement firm, lists average salaries for doctors by specialty. After residency training is complete, Family Practice primary care physicians without obstetrics earn the second lowest of the salaries surveyed. Even when obstetrics is included, the bump in pay does not match the skyrocketing malpractice claims which can drive up premiums from an average of $6000 a year to $64,000 or more. Add in the average medical school debt of $156,000 and one can see why doctors are voting with their feet to move from low paying, high malpractice insurance coverage specialties to high paying relatively low cost malpractice insurance specialties.
So where is the shortage in primary care physicians if their salaries are so low? If demand for their service outstrips supply, prices should rise, right? Based on the salaries, there is no primary care doctor shortage. Pumping out more med school graduates or worse, importing physicians from abroad by relaxing training standards, will simply force more primary care physicians into other specialties faster. It will not expand the pool of primary care physicians.
If primary care physicians are so important, they should be paid better. That means increasing Medicare and Medicaid reimbursements for primary care physicians to match those of the better paying specialties. Since private insurance follows Medicare’s lead, and reimbursement rates are set by Congress, then the solution lays with our elected representatives.
Unfortunately for doctors, they don’t have the same pull as the unions or the ABA, so the mythical shortage may become a reality unless they take action. Or start visiting SEIU union halls for their health care.