Health Human Resources: Cost Driver of the Canadian Health Care System

Abstract

The Baumol cost-disease, where labour-intensive services become relatively more expensive over time, is explored as a contributor to rapidly rising costs in the Canadian health care system. Using data from a variety of sources for the period 1987-1999, health expenditure is decomposed to understand the role labour has played as a cost driver. The results of this paper do not strongly support the hypothesis that the Baumol cost-disease has been a force in the Canadian health care sector. Although labour income growth has been found to be driving up health costs for salaried health professionals, this has not been the case for the physicians who are paid on a fee-for-service basis; their earnings have actually fallen. The final result is an average annual increase of 0.66% in real earnings of all health professionals together. The strength of the conclusions is mitigated by the fact that we have no good measure of the price of health or health care (given that there is substantial technological change in the health sector). However, with slightly increasing labour income, it is difficult to argue that labour cost per unit of health has risen over time. The implications of our results are examined in terms of the consequences for other possible causes of rising health care costs.

Keywords: Health Human Resources, Baumol Effect

JEL Classification: I12