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Centralised pay setting kills finds new research

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Nurses' pay in England is set centrally with little local variation meaning that hospitals in high cost areas struggle to recruit and retain staff. As a consequence, they treat fewer patients and have higher fatality rates among patients admitted with emergency heart attacks. That is the central finding of new research from the Centre for Economic Performance (CEP) at LSE and the Centre for Market and Public Organisation (CMPO) at Bristol University.

The study by Professor John Van Reenen, director of the Centre for Economic Performance (CEP) at LSE, Professor Carol Propper, and Emma Hall, CMPO, suggests that that a ten per cent increase in the gap between the wages paid to NHS nurses and those paid to women working in the private sector locally raises the fatality rate among people admitted with a heart attack by five per cent.

The research looks at how centralised pay setting for nurses in the NHS affects hospital performance by tracking changes in the outside wage and changes in performance in over 100 English hospital trusts over a six-year period.

Key findings include:

  • In areas like London where the outside labour market is strong and where the wages of nurses are lowest compared with their non-nurse counterparts, nurse vacancy rates are higher and fewer qualified nurses work in the NHS
  • Staffing problems are not confined to the human resources department but feed into a lower quality of service provision and poorer outcomes for patients.
  • Hospitals in areas where the outside labour market is strong have lower volumes of activity relative to their staffing levels. They also have higher fatality rates among patients who are admitted with emergency heart attacks
  • None of these effects are present in firms operating in the private sector. Nor do they seem to arise because hospitals in high cost areas face greater financial problems or have patients who are sicker - in fact, patients in many high external wage areas generally have better health than those in low external wage areas
  • One key problem is that hospitals that find it difficult to recruit permanent staff rely more on temporary agency staff. These nurses can be paid at a higher rate to get around the pay regulation. But they often tend to have less experience and training, and will not know the hospital as well as someone on a permanent contract

Professor John Van Reenen said: 'Regulating down public sector wages in high cost areas like London and South East causes patients to suffer. It would be better if local public sector wages reflected local market conditions: higher in high cost areas, lower in low cost areas.'


Click here for a copy of the report Can Pay Regulation Kill? Panel Data Evidence on the Effect of Labour Markets on Hospital Performance.|


Notes for editors

For a full press release contact Romesh Vaitilingam, CEP Press Officer, by calling 07768 661095 or emailing romesh@compuserve.com|

Press cuttings

Financial Times
NHS pay system puts lives at risk in the south
Centralised pay settlements in the NHS are killing patients because hospitals cannot recruit sufficient skilled staff, according to leading economists. Wage controls under which nurses' pay is set with relatively little extra for working in London or the south-east mean that hospitals in these high-cost areas struggle to recruit and retain staff, according to Carol Propper and Jan Van Reenen, professors at Bristol University's Centre for Market and Public Organisation and the London School of Economics' Centre for Economic Performance.
http://www.ft.com/home/uk| (subscription)

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