One major reason for growing compensation for health care workers (which is itself a major factor in high health care costs. - "Baumol's Disease"
...Just What is Baumol's Disease?
For those of you born in the 60s, 70s, or 80s, here's a little history lesson. After World War II, a revolution of factory automation occurred in the United States. Manufacturers could automate parts of their manufacturing processes and drastically increase their productivity. We define productivity here as the cost of manufacturing a product unit divided by the labor cost required. Productivity increased when products could be manufactured through automation with less labor. The result in the 50s and 60s was a great displacement of manufacturing workers along with a decrease in the cost of manufactured goods.
Baumol addresses the economics of this displacement with a model he calls the Unbalanced Expansion Model. He notes that at any time there are two kinds of activity sectors. The progressive sector consists of activities such as manufacturing in which productivity is increasing rapidly due to innovations such as automation. The other is the non-progressive sector containing activities that are not becoming more productive, such as most service activities. These include education, health services, governmental services, and many others. In 2005 we might add programming and information development to this list. Many activities performed by educated professionals cannot be automated. Baumol points out that a string quintet composed by Mozart still needs five musicians for a performance, the same as in 1787.
The two sectors have experienced very different rates of productivity growth and are therefore unbalanced. The consequences are great. Many people who work in the progressive sector lose their jobs to automation. Those remaining can be paid more because the automation has saved their organization enough money to raise salaries.
The non-progressive sector cannot increase its productivity but its wages go up nevertheless because of rising wages in the progressive sector. Service workers have the option to move to higher paying progressive-sector jobs. The non-productive sector's services, therefore, become more and more expensive because the increasing labor costs are not offset by innovation and automation. Because fewer workers are needed in the progressive sector, the number of people in the non-progressive sector grows. We have seen this dramatic change in the United States since the end of World War II when most workers were involved in manufacturing. Now the majority of workers are in service industries. Baumol's model has often been referred to as "Baumol's disease" because the increasing costs in the non-progressive sector due to innovation and automation in the progressive sector seem inevitable.
As a result of innovation and automation, the costs of manufactured products have stayed the same or even fallen. At the same time services have become ever more expensive. Services that are considered essential have become the most expensive. These include education and health services that the public is willing to buy at any price. Non-essential services have either gone away because they are considered unaffordable or have become luxury items. The division between the two sectors has become so extreme that we can now buy a watch for less than it costs to hire a teenager to mow our lawn!...
infomanagementcenter.com
In some sectors (like computer tech support) the answer was to use lower costs for international voice and date communication to use lower cost workers from poorer countries. Perhaps some savings from methods like this have worked in health care, but it hasn't had nearly as large of impact in health care, it hasn't kept doctors compensation from growing.
More on that issue and its effect on health care costs
healthcare-economist.com
janegalt.net
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