The short answer is that they don’t affect wages or overall employment levels, at least according to a new article in the Southern Economic Journal (ungated version here) by Kihwan Bae and me.
This was surprising to me, as I kind of expected CON laws to harm workers. Certificate of Need laws require many types of health care providers to obtain the permission of a state board before they are allowed to open or expand. This could lead to fewer health care facilities, and so less demand for health care workers, lowering wages and employment. It could also lead to less competition among health care employers, to similar effect.
On the other hand, less competition in the market for health services could raise profits, with room to share them in the form of higher wages. Or, CON being primarily targeted at capital expenditures like facilities and equipment could increase the demand for labor (to the extent that labor and capital are substitutes in health care). All these competing theories seem to cancel out to one big null when we look at the data.
We use 1979-2019 data from the Current Population Survey and a generalized triple-difference approach comparing CON-repealing to CON-maintaining states, and find a bunch of fairly precise zeroes. This holds for many different definitions of “health care worker”: those who work in the health industry, in health occupations, in hospitals, in health care outside hospitals, nurses, physicians, and more.
This is the first word on the topic, not the last; I wouldn’t be too surprised if someone down the road finds that CON does significantly affect health care workers. In this paper we pushed hard on the definition of “health care workers”, but not on “Certificate of Need” or “wages”. We simply classify states as “CON” or “non-CON” because that is what we have data for, but some states have much stricter programs than others, and some day someone will compile the data on this back to the 1970’s. The easier thread to pull on is “wages”. We use one good measure (the natural log of inflation-adjusted hourly real wages), but don’t do any robustness checks around it; considering “business income” could be especially important here. It is also possible that CON affects workers in other ways; we only checked wages and employment.
The full paper is here (ungated here) if you want to read more.
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