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Liam M. Schmidt
Temple University
THE RELATIVE EFFICIENCY OF PHILADELPHIA’S HEALTHCARE LABOR MARKET
The labor market is an essential component of any field of economics, but it is especially
relevant to health economics since “health services are mostly labor” (Getzen, 309) In fact, over
53% of hospital expenditures go directly to labor (Getzen, 174). Therefore, since understanding
the labor market and its components is so crucial to understanding the overall well-being of the
the status of a healthcare economy’s labor market does not give the entire picture of the
which can provide telling information about the systems that the people behind the health
services we receive are in. Any labor market is essentially defined as “the supply and demand for
labor, in which employees provide the supply and employers the demand” (Floyd). The labor
market is critical to any economy, but as mentioned above, it is even more critical to the
economy of healthcare. Labor markets can be analyzed at both the microeconomic and
macroeconomic level. At the micro level, firms such as businesses and hospitals make decisions
about the level of how many factors of production (workers) to hire. These workers also seek
employment with specific employers depending on factors such as location, specialty, quality,
and many others which are relevant to them. However, since there are so many different firms in
many different regions across the country and world, it is not practical to analyze each individual
firm or worker. Therefore, analysis of the labor market using macroeconomic variables and
theories is much more practical. At the macro level, we analyze the total supply and total demand
for labor for a specific region. Aided with certain variables such as aggregate employment,
wages, productivity, and social welfare for a region, we can test and compare the relative
dynamics is highly useful in determining the relative standing of healthcare labor markets. It can
THE RELATIVE EFFICIENCY OF PHILADELPHIA’S HEALTHCARE LABOR MARKET
also be used to determine certain strengths/weaknesses of the market and which areas can be
improved upon.
Philadelphia is the fifth most populous city and seventh most populous metropolitan
statistical area (MSA) in the United States (U.S. Census Bureau). It is the seventh largest
metropolitan economy in the country (Bureau of Economic Analysis). It is one of the oldest and
most historic regions in the country making it a quintessentially American city. The nation’s first
capital played an instrumental role in founding many modern healthcare systems and facilities.
The first hospital of the thirteen colonies, Pennsylvania Hospital, was established by Ben
Franklin in 1751 and the first medical school, the Pennsylvania School of Medicine, in 1765.
Also on this impressive list of national firsts are the first exclusively mental hospital (Friends
Hospital), the first college of pharmacy (Philadelphia College of Pharmacy), and the first
Other American healthcare first from Philadelphia include the first cancer hospital (Fox Chase
Cancer Center) and eye hospital (WillsEye Hospital) (Gavin). This impressive list of American
medical firsts makes it clear that he people of Philadelphia played an important role in
Most of these historic medical establishments are still in operation today and are some of
the major employers in the region. Healthcare is the largest industry of employment in the city.
In fact, CHOP, Thomas Jefferson University/Hospital, Albert Einstein Medical Center, Temple
University Hospital, Independence Blue Cross, Aria Health, and Hahnemann University Hospital
all rank within the top twenty employers in the Philadelphia region (Reyes). To say the
Although Philadelphia has a rich history of medical and pharmaceutical innovation and a
large health industry, the systems of the city are not known for their efficiency. One need only
look at the city’s transportation systems, infrastructure, and local government to see glaring
Pennsylvania Transportation Authority (SEPTA), is known among locals for its services’ delays,
cancellations, and labor strikes among many other crises. The authority’s history has been quite a
tumultuous one (Williams). The city’s infrastructure is also questionably inefficiency. Many of
the cities’ roads and highways are not up to modern standard, causing inevitable rush-hour traffic
on major highways I-95 and I-76. Certain low-income neighborhoods suffer from
disproportionately high crime rates and blocks of failed, boarded-up, or neglected housing
developments. Certain regions seem forgotten about, pointing to the local government’s
incompetence and inefficient use of public funds. Many of the local government’s other
decisions regarding the school, prison, and taxation systems are met with many questions from
citizens and local businesses. The existence of so many inefficiencies among the city’s major
systems begs the question if its largest industry (healthcare) suffers a similar fate.
determine how Philadelphia’s healthcare labor market stacks up compared to other, less historic,
healthcare markets from across the nation. Since several of Philadelphia’s other major systems
seem to be inefficient, I will enter with the hypothesis that Philadelphia’s healthcare labor market
is relatively inefficient. I will use data from similarly-sized (the top twelve most populated)
metropolitan statistical areas of the United States to test Philadelphia’s relative economic
In Health Economics and Financing, Getzen outlines steps in the production efficiency
process (39). Each step builds upon the next. Using economic data and other relevant statistics, I
will analyze the relative standing of Philadelphia within these different types of efficiency. Once
I have ranked each of the twelve metropolitan statistical areas in the steps of efficiency and other
relevant data, I will develop a composite efficiency score for each area. I will then rank each of
the twelve by their composite score and will use this ordering to determine the relative efficiency
of Philadelphia’s healthcare labor market among those of the other eleven largest metropolitan
statistical areas.
To better understand the context of this hypothesis test, I will first analyze the overall
macroeconomy and labor market of the Philadelphia area through a less narrow scope. The
Philadelphia metropolitan statistical area (MSA) includes the city of Philadelphia and the
surrounding suburban counties of the Delaware Valley. It is also comprised of three metropolitan
divisions (MD), Camden, Philadelphia, and Wilmington. 65,000 total nonfarm jobs were added
within the area over the last year (Feb. 2016 to Feb. 2017). This is a growth in employment of
2.3% for the Philadelphia MSA compared to a growth of 1.7% nationwide. The area has not had
an over-the-year decline in employment totals in six years, since the financial crisis and
recession (Bureau of Labor Statistics). Of all the area’s industries, education and health services
added the most employees over the year. The education and health services industries
experienced a 4.8% growth in employment, which nearly doubles the nationwide growth rate
(2.5%) for these industries. (Bureau of Labor Statistics). Both growth rates, total nonfarm
employment and education/health services employment, reflect positively on the healthcare labor
market for Philadelphia. More jobs are being added to the supply of labor in Philadelphia relative
to the rest of the nation. Also, more of those added jobs are within the healthcare labor market
THE RELATIVE EFFICIENCY OF PHILADELPHIA’S HEALTHCARE LABOR MARKET
relative to the labor markets of other industries. In essence, this data indicates that Philadelphia’s
overall labor market and healthcare labor market are growing at a faster pace than those of the
This data seems to contradict the typical flow of workers into certain industries. Relative
to other industries, the health care and social assistance industry typically experiences a high
amount of job openings but a low amount of hires. This phenomenon can be observed in the
above two figures. In Figure 3, industries are plotted along the x-axis according to their hires,
and the y-axis according to the amount of job openings. The healthcare and social assistance
industry is plotted in the top left quadrant. In Figure 4, industries are ranked by their fill rate,
which is the ratio of hires to job openings (Bureau of Labor Statistics). The healthcare and social
assistance industry appears at the bottom of this figure, lower than many industries, implying that
the industry needs workers but are not hiring them at a quick rate. Health employers may sort
through applicants to find the most qualified workers. The demand for workers is high in this
industry, but since health occupations may require years of education and training, the supply of
workers may lag behind demand (Oslund). The healthcare industry also has a relatively low
churn rate, which is the sum of the hires rate and separations rate. The hires and separations rates
are at about the same level, so we can deduce that the industry’s national labor market is steady
than national healthcare employment, we can say that the regional market is expanding at a
greater rate than the national market. Despite being in an industry that typically experiences low
hires relative to job openings, Philadelphia’s healthcare labor market is hiring at a higher rate
relative to other markets, causing regional healthcare employment to grow at a faster rate than
We know that Philadelphia’s healthcare labor market is expanding at relatively high rate,
but before we conduct our test of efficiency, we should understand how the actual structure of
the market affect the quality of care received and overall wellbeing of society. In “Market
Structure as a Determinant of Patient Care Quality,” Wilson analyzes the role that market
structure plays in affecting health outcomes through an objective study on dialysis patients in
Atlanta. He found significant evidence that higher levels of competition foster higher-quality
care. Also, for-profit healthcare facilities provide care that is just as good, if not better, as
nonprofit healthcare facilities (Wilson). Getzen also elaborates on this phenomenon in chapter 8,
“Hospitals.” Hospitals will compete for patients, physicians, and contracts to directly increase
their revenue, and indirectly improve the quality of the care that they provide (Getzen). Applying
Wilson and Getzen’s research to the Philadelphia healthcare labor market, we observe a regional
healthcare system with large competing systems such as Abington Health, Aria Health, Crozer-
Keystone Health System, and Einstein Healthcare Network, among others (Brubaker). These
firms compete amongst one another for patients, physicians, and contracts, and are all for-profit
organizations. Based upon these assumptions, the structure of Philadelphia’s healthcare market
should foster relatively high quality of care for citizens and patients of the region.
THE RELATIVE EFFICIENCY OF PHILADELPHIA’S HEALTHCARE LABOR MARKET
One final factor that should be considered before we begin our hypothesis test is
economic inequality and the role that it plays determining the quality of care patients receive and
the overall wellbeing of society. Societies that have higher economic equality, meaning less
dispersion between the rich and poor, are typically stronger and better off than those with high
economic inequality (Wilkinson, Pickett). The Philadelphia metropolitan statistical area has the
116th highest top-to-bottom ratio (ratio of top 1% income to bottom 99% income) of all 916
metropolitan statistical areas of the United States (Economic Policy Institute). This information
by itself is useless, but if we were to compare Philadelphia’s relative economic inequality to the
other eleven MSAs in our objective test, it would be useful. I will add this metric from the EPI as
a component to my composite score for efficiency. Those MSAs with the lowest levels of
Now that we have gone through the supporting research and background information
required to conduct the objective hypothesis test for Philadelphia’s healthcare labor market’s
relative efficiency, we may now begin the test. I will explain each of the components of the
composite score and the data sources for each of them. Once I have gone through each of the
components, I will use the rankings of the twelve MSAs to calculate a composite score of
The first score I will calculate will be the factor of inequality discussed at the top of this
page. As I mentioned above, the fact that the Philadelphia MSA has the 116th highest top-to-
bottom ratio is useless by itself. To make this information useful, I will compare Philadelphia’s
ranking with those of the other eleven most populated MSAs of the United States. The figure
below (E.1) is composed of data from the Economic Policy Institute and shows the top-to-bottom
THE RELATIVE EFFICIENCY OF PHILADELPHIA’S HEALTHCARE LABOR MARKET
ratios of these metropolitan statistical areas, as well as the relative standing of their economic
Figure E.1 shows that, although 116th out of 916 is far from the best of all MSAs, Philadelphia
has the third highest level of economic equality among the twelve most populated areas. This
ranking will positively benefit Philadelphia’s composite efficiency score. However, since
economic inequality is still indirectly linked to the efficiency of labor markets, I will place a
The second score that I will calculate for the twelve MSAs is the growth rate of the
supply of labor over the past 26 years (1990 to 2016). I have used data on employment from the
Bureau of Labor Statistics for the education and health services industries within each of the
twelve areas. I have found the percent change in employment within the health industry for each
of the twelve areas by using the formula =(2016E-1990E)/1990E. For example, in 1990, 354,200
people were on the education and health services industry payroll in the Philadelphia MSA, in
2016, 622,700 people were. So, Philadelphia’s % change over the period is (622.7-354.2)/354.2
= 0.758 (Bureau of Labor Statistics). This score, along with those for the eleven other MSAs are
represented below.
THE RELATIVE EFFICIENCY OF PHILADELPHIA’S HEALTHCARE LABOR MARKET
In Figure E.2, Philadelphia ranks eleventh out of twelve for the growth of its healthcare labor
supply over the last 26 years. This table shows that although major cities like Chicago, Boston,
and Philadelphia have quite large supplies of labor, they have not increased their supplies at
similar rates to developing metropolitan areas, such as Phoenix, Atlanta, and Dallas. There also
appears to be a trend of high growth in Southern metropolitan areas relative to those of the
North. It is important to note that this industry data from the BLS also contains employment for
the education services industry, in addition to the health services industry. Overall regional
population growth also has an influence on these tallies. However, since labor supply is a key
component of the labor market, I will place a moderately strong weighting on this score.
The third score represents the first of Getzen’s seven types/steps of efficiency,
Supervisory efficiency. This type of efficiency analyzes how well a supervisor (or manager) gets
the most out of the inputs (labor) that they have available. In the context of Philadelphia’s
healthcare labor market, supervisors are healthcare managers and employers who oversee many
healthcare workers. To create an objective measure for this score, I have located a study
conducted by a WalletHub senior writer on which American cities have the best leaders. The
methodology of the study is a composite score comprised of metrics on education, health, safety,
financial stability, and infrastructure to decide which metropolitan statistical area is best-run.
Each of the twelve metropolitan statistical areas from my analysis are included in the study, so
ranking them is easily done. The areas are ranked in the table below (Figure E.3).
THE RELATIVE EFFICIENCY OF PHILADELPHIA’S HEALTHCARE LABOR MARKET
Figure E.3 shows the ranking of the MSAs out of 150 (Phoenix – 66th out of 150, =66/150 =0.44)
and among themselves (Bernardo). It appears that the nation’s most populated regions are not
necessarily the best run. Managing a higher density of people proves to be a hard task to do
efficiently. Phoenix is once again a high performer, while Philadelphia is among the worst-run
cities. Since the findings of this study may not highly correlate to the quality of health care
The fourth component of the efficiency composite score is the factor of overall economic
performance among these twelve metropolitan statistical areas. I have used a report from the
Milken Institute on the best performing metropolitan economies of 2016 as ranking data. The
This data is based off a weighted composite index including components such as job growth,
wage and salary growth, and high-tech GDP growth. Employment growth is heavily weighted in
this metric due to its “importance to community vitality.” Philadelphia ranks last among the
THE RELATIVE EFFICIENCY OF PHILADELPHIA’S HEALTHCARE LABOR MARKET
twelve largest MSAs in my study. Since this data comes from such a comprehensive and recent
The next score by which I will order the MSAs is arguably the most important to labor
markets. It will include data for steps three and four of Getzen’s types of efficiency, cost
minimization and allocative efficiency (profit maximization). Viewing these topics through the
lens of a healthcare labor market, cost minimization involves the optimal combination of labor.
Allocative efficiency involves the quantity of healthcare that should be provided. As I mentioned
above, an efficient healthcare labor market operates with relatively low hires and high job
openings. To get the most accurate score to reflect allocative efficiency of a healthcare labor
market, I have used a four-pronged approach to ranking the MSAs for this score. I will use
seasonally adjusted employment data from the Bureau of Labor Statistics to create a composite
score for allocative efficiency from four scores for unemployment rate, earnings, hires/job
openings, and quits/layoffs. Each of MSAs is ranked according to how close they are to the ideal
measure for each of the four scores. The final data for this score is presented in Figure E.5.
Using BLS data on unemployment, earnings, fill rate, and separation rate, I have ranked the
twelve most populous metropolitan statistical areas by their allocative efficiency. The San
Francisco MSA is the highlight of the Pacific Coast, while the Boston MSA is that of the Eastern
seaboard. Both areas have healthcare labor markets with high allocative efficiency. Philadelphia
THE RELATIVE EFFICIENCY OF PHILADELPHIA’S HEALTHCARE LABOR MARKET
is lacking behind at eighth place, with its relatively high unemployment rate dragging its score
down. Since this is the most important type of efficiency for my analysis, I will weigh it heavily.
The penultimate score in my index will measure dynamic efficiency. Dynamic efficiency
considers how production changes over time. To rank the MSAs in this score, I have found an
index on inclusive metropolitan economic growth from Brookings. The index considers that our
nation’s metropolitan economies have grown and adapted at different rates in areas such as
inclusion and prosperity over the period from 2010 to 2015. The index contains metrics on
employment, wages, and income and measures how they have fluctuated over time within each
MSA. The MSA rankings for this score are presented below.
The final score in my index measures the last step in the efficiency process, the result –
social efficiency. This type of efficiency deals with the externalities created by the healthcare
system. It measures the effect of healthcare on society overall. To calculate this score, I have
pooled together data from the Health Indicators Warehouse. Since social efficiency can be
viewed as the end output of the healthcare production process, I will analyze the overall health of
people living in the twelve MSAs, and rank them accordingly. I have combined the rankings
from a few health indicators such as years of potential live lost before age 75 (YPLL-75), percent
of persons under 65 without health insurance, and percent of adults who needed to see a doctor
but could not because of cost. The final data is presented below in Figure E.7. Although
Philadelphia has a large, profitable healthcare industry, its citizens are relatively unhealthy.
THE RELATIVE EFFICIENCY OF PHILADELPHIA’S HEALTHCARE LABOR MARKET
I have now calculated seven scores to go into my composite index. I will apply an
appropriate weight on each of the rankings, and calculate a composite score for the efficiency of
the healthcare labor market for each metropolitan statistical area. Since there are seven scores, I
divided one by seven to get 0.14286 as a base weight. I assigned this base weight to the scores
from E.2, E.6, and E.7. I subtracted 0.4 from the base weight and assigned 0.10286 to the scores
from E.1 and E.3 to give them a smaller effect on the composite index. In a similar fashion, I
added 0.4 to the base weight and assigned 0.18286 to the scores from E.4 and E.5 to give them a
greater effect on the composite index. The final table index appears below in Figure E.8.
Each metropolitan statistical area’s rankings are multiplied by their respective weighting and
summed to produce the composite efficiency index. San Francisco and Dallas were consistently
ranked best, while Chicago and Philadelphia were among the worst ranking. The results of these
four cities align with their economic reputation of the 21st century. The former are relatively
THE RELATIVE EFFICIENCY OF PHILADELPHIA’S HEALTHCARE LABOR MARKET
young, successful, and thriving economies while the latter are older and poverty stricken with
underfunded infrastructures. The Philadelphia metropolitan statistical area has the highest
composite efficiency index among the twelve most populated areas, ranking the area’s healthcare
labor market last in economic efficiency. The sample distribution of composite indexes has a
right-skewed distribution with mean score of 6.5 and a standard deviation of 1.5. This places the
Philadelphia MSA at about 1.75 standard deviations above the mean composite efficiency index.
Conversely, the best performing MSA, San Francisco, scores 1.65 standard deviations below the
mean.
My research and data analysis appear to support my initial hypothesis that Philadelphia’s
healthcare labor market is relatively inefficient. At the very least, I can say with certainty that I
do not have statistically significant evidence to reject this hypothesis. The Philadelphia-Camden-
Wilmington metropolitan statistical area performed poorly across six of the seven efficiency
metrics I tested it with. Only in the test for economic inequality (E.1) did the area finish in the
top half of the rankings. But, Philadelphia still suffers from high inequality, just not relative to
other highly populated areas. This economic inequality suffered by a large disadvantaged
population and labor supply shortages/inflexibility are indicators that a local healthcare labor
My research and data analysis leads me to believe that Philadelphia’s healthcare labor
market suffers a similar inefficient fate as many of its other major systems do. Although the
region has a rich medical history and large healthcare industry, the industry’s labor market is
supply growth, management, overall economic wellbeing, allocative, dynamic, and social
efficiency.
THE RELATIVE EFFICIENCY OF PHILADELPHIA’S HEALTHCARE LABOR MARKET
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