Saturday, Jan. 6, 2018 8:00 AM - 10:00 AM
- Chair: Michael Lipsitz, Miami University
Physician Concentration and Negotiated Prices: Evidence From State Law Changes
AbstractWe study the relationship between physician market concentration and prices negotiated between physician practices and private insurers. We develop new instrumental variables for changes in concentration using state-level judicial decisions that change the enforceability of non-compete clauses in physician employment contracts. These law changes alter the organizational incentives of physicians, causing shocks to the concentration of physician markets. Using two databases containing the universe of physician establishments and firms in the US between 1996 and 2007, linked to prices negotiated with private insurance companies, we show that prices fall when physician establishments grow larger but rise when physician firms grow larger conditional on establishment concentration. Our results imply that a 100 point increase in the establishment-based Herfindahl Index (HHI) causes a 1.3% to 1.7% decline in prices, suggesting that insurers extract some efficiency gains from larger establishments. In contrast, the same change in concentration caused by physically distinct establishments negotiating jointly leads to price increases of 1.0% to 2.0%. The overall effect of a one standard deviation increase in state non-compete enforceability is a 9.6% increase in average physician prices.
Why Are Low-Wage Workers Signing Noncompete Agreements?
AbstractNoncompete agreements (NCAs), which contractually limit where an employee may work in the event of a job separation, have been recognized as tools employers use to protect nonphysical production assets and to reduce turnover. However, recent evidence that NCAs are widely and increasingly used in lower-wage jobs suggests our understanding of NCA use remains incomplete. In this paper, we show that NCAs arise when employers and employees are limited in their ability to transfer utility via the wage. Our model of the labor market predicts that, when such limitations are present, the terms of trade may dictate that NCAs are used to transfer surplus from the employee to the employer, even when NCAs reduce the pair's joint surplus. We find support for our model's predictions using a new survey of owners of independent hair salons, an industry in which NCAs are widely used. We find that declines in two distinct measures of the terms of trade for employees, and decreases in transferability of utility (measured by the state minimum wage) are associated with increases in NCA use. Furthermore, we generate a test for identifying when NCAs do not maximize a firm's surplus, and we identify a subset of firms in our sample, characterized by limited access to credit, for which this is the case.
The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship
AbstractI investigate the impact of restricting labor mobility on two components of growth: entrepreneurship and capital investment. To identify the mechanism, I combine LinkedIn’s database of employment histories with staggered changes in the enforceability of non-compete agreements that come mostly from state supreme court rulings. Stronger enforceability leads to a substantial decline in employee departures, especially in knowledge-intensive occupations, and reduces entrepreneurship in corresponding sectors. However, these shocks increase the investment rate at existing knowledge-intensive firms. The estimates in my sample suggest that, in such sectors, there is roughly $2 million of additional capital investment from publicly-held firms for every lost new firm entry.
- J3 - Wages, Compensation, and Labor Costs
- K3 - Other Substantive Areas of Law