They Make Minimum Wage. They Could Save Your Life.

I just started teaching my annual undergraduate course at Harvard, which focuses on the quality of healthcare in America. And when it comes to quality in healthcare, one aspect we do focus on is the people who work in it. Usually that means the physicians, surgeons, nurses, technicians, and others who diagnose, treat, and care for patients — which seems to make sense. And those people are usually paid well, in some cases very well, for the important work that they do. But a lot of the work in hospitals and medical offices is done by other people — people who care for patients in different ways but don’t have a medical degree, or in many cases, a degree at all. Sometimes, they’re making minimum wage.

I’m Bapu Jena, and this is Freakonomics, M.D. Today on the show: We work hard to improve health care quality in the U.S. What if we just paid certain people more?

KANFER: So Bapu, what are the typical things that affect quality in healthcare that we know of?

That’s my producer Julie Kanfer and she’s asking a question that really smart people in my field think about all the time. One of the most influential frameworks for quality came from The Institute of Medicine, which more than 20 years ago laid out six goals: healthcare should be safe; effective; patient-centered; timely; efficient; and equitable. If we can do all that, they said, we should be able to achieve high-quality care for patients. We’ve tried lots of things over the years and achieving those goals has been an extraordinary challenge. But a recent paper called “Worker Earnings, Service Quality, and Firm Profitability” made me wonder if there could be another way to improve quality in medicine.

KANFER: Tell me about why this paper on minimum wage is relevant to quality in healthcare.

JENA: All right, so let me start by saying that this paper by, Krista Ruffini, — it’s really interesting. It was published in the Review of Economics and Statistics, which is a top journal in the field of economics. But the motivation for the paper was to explore whether or not paying higher earnings to typically low paid workers could affect the quality of their work.

KANFER: And what do we know about the relationship between paying people more and getting better quality in terms of their work?

JENA: So one direction is a positive direction that if you pay people more, for example, by increasing the minimum wage, you might attract higher quality workers into the workforce. The second relates to incentives to invest in your own productivity as a worker. So, you might expect workers to have longer tenures in their job because they don’t wanna lose that job because they’re getting paid more. They may invest more in their skills that are required for doing the job, well.

KANFER: Is that the efficiency wage?

JENA: That refers to that concept, yeah. Now there’s a more classical theory for what might happen, which is that if you enact a minimum wage, what does that mean for employers? It means that you have to pay your workers more, right? So the costs to you go up, and the natural prediction would be that you would employ fewer workers. Now, if you employ fewer workers, think about what that might mean for a hospital or for a nursing home. That could actually mean worse care for nursing home residents. So it’s sort of theoretically ambiguous which direction things would go.

KANFER: There’s much greater implications to having less staff in a healthcare setting because the stakes are higher.

JENA: Exactly, yeah. And when we think about healthcare quality we focus a whole lot of attention on the group of people that are doctors, right? Because doctors, understandably, are responsible for making medical diagnoses. They’re responsible for making treatment decisions. They work in collaboration with highly-skilled workers like nurses, therapists, other technicians, all of whom are performing work that’s not that substitutable. And it does beg the question: What about all of the other people who work in healthcare who serve more of a supporting role, let’s say we’re talking about a nurse assistant, for example or a home health aide. These are employees who, on average are earning something like $13 an hour. These are typically lower paid workers who really form the foundation of a lot of what happens in healthcare. And as we dig into this study, I think it at least indicates to me, well, maybe we should be thinking a little bit differently about their role.

KANFER: Let’s talk about this paper on minimum wage.

JENA: So, what Krista Ruffini does is the following. She takes advantage of the fact that different areas have different policies towards minimum wages. And over time, some areas — could be a county, could be a whole state — make decisions about minimum wage. For example, a county in one state might decide to increase the minimum wage whereas a county that is just across the border in a different state, may not see that same increase. And the idea is that those two counties are very close to each other, so they share some of the same local economic environments. So, she tries to take advantage of those minimum wage increases to study what impact they have on healthcare workers who are working in long-term nursing home facilities.

KANFER: Why are nursing home facilities a good venue to look at this question of minimum wage and how it could impact quality?

JENA: I think it’s important for two reasons. One is that there are a fair number of low-wage workers in nursing homes, so these would be support staff or nurse assistants. And the second is that, we can measure quality quite well. In a nursing home, you might look at something like mortality — very important quality metric. You might look at something like, how many citations does a nursing home have for deficiencies in quality? You might look at falls or bed sores, you know, pressure ulcers, those sorts of things. So, because there’s a lot of low, wage workers in nursing homes and because we can measure quality from publicly available data, it’s sort of a natural setting to study this question.

KANFER: Okay, so now what does Krista do when she gathers all of this data?

JENA: The first thing is she shows that higher minimum wages increase the earnings among the low-wage workers in the nursing homes. So that should make sense, right? That’s not surprising. The second thing she finds, which is I think a very interesting labor economics finding, but it has implications for health in a way that we’ll talk about in a second, is that those higher minimum wages lead people to remain employed by that same nursing home for longer. Now, here’s where the health stuff comes in. She finds that the minimum wage increases reduce the number of health inspection violations. The second thing that she finds, is that the fraction of nursing home residents with moderate to severe pressure ulcers — these are ulcers that happen usually on the bottom of the body because you’re laying in bed for long periods of time — falls, after the minimum wage increase goes into effect in certain facilities. And then the last thing that she finds is that nursing home mortality, so how likely are people who live in the nursing home to die — that probability falls in facilities where the minimum wage increases. So to summarize, we see a decline in inspection violations, we see a decline in things like pressure ulcers, and we see a decline in mortality. Those are three really interesting measures of healthcare outcomes or quality that all seem to improve when the low-wage staff in nursing homes are paid more.

After the break: Did paying low-wage staff more mean that nursing homes employed fewer of them? And could nursing homes realistically increase pay at a time when long-term care is in such high demand? I’m Bapu Jena and this is Freakonomics, M.D.

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As I explained just before the break, Krista Ruffini’s recent paper found that patients in nursing homes do better when the minimum-wage staffers looking after them got a raise. How big was the effect? Back to my discussion with my producer, Julie.

JENA: Let me give you some magnitude. A 10 percent minimum wage increase reduces the inspection violations by about 2 percent. It reduces the fraction of residents with moderate to severe pressure ulcers by about 1.7 percent, and it reduces nursing home mortality by about 3 percent. These are meaningful outcomes. And why do I say that? Well, they’re not tremendously large, but a lot of what we do in quality and safety doesn’t actually affect mortality. So the fact that we’re seeing any sort of mortality, , reduction here to me is meaningful.

KANFER: She’s saying that if every county increased its minimum wage by this 10 percent number, that there could be 15,000 fewer deaths in nursing homes each year across the country, which is a pretty big number.

JENA: Agreed. Yeah. The other thing that she shows is that even though their labor costs go up, they still seem to do better in terms of patient outcomes. And remember our earlier discussion — it could have been the case that nursing homes and patients in those nursing homes would’ve fared worse. Why? Because if the labor costs go up, the nursing homes might hire fewer low-wage staff. But she finds the opposite, people do better. And this can all be tied together by this other thing that she shows, which is that the prices that the nursing homes are able to charge go up. And they go up for two reasons. One is because the quality of care goes up, they increasingly are able to serve individuals who have a greater ability to pay. So these might be people who are paying out of pocket. And then the second thing is that they’re able to charge private insurers higher prices, again, presumably because the quality of care that they’re providing has now gone up.

One concern from these findings is that nursing homes might be incentivized to favor residents who can afford to pay the higher prices, either out of pocket or through insurance — meaning that Medicaid recipients could be turned away, even though that sort of discrimination is illegal. And the research did indicate that increasing minimum wage by 10 percent led the average 100-bed facility to serve 0.3 fewer Medicaid recipients. It’s not nothing but to me, it’s not overly worrisome either.

Long-term care is a giant sector in the U.S. It currently accounts for 10 percent of all Medicaid and Medicare expenditures, and a report released by the American Action Forum in 2020 predicted that the number of Americans needing long-term care will almost double by 2030. That report also suggested that the supply of caregivers is shrinking relative to the demand. So, we wondered:

KANFER: Can this industry afford to pay low-wage workers more money if we’re only going to have more need in this area?

JENA: I think it’s an open question. What you’d wanna factor is how much more do nursing homes have to pay for, lower wage workers, and then what does society get for that and what do those individuals get from that, right? Because, we might want to increase the minimum wage not just because it improves the quality of patient care. That’s a nice benefit. But obviously we do it for reasons that are much more focused around improving the quality of life of people who are lower wage workers, so that’s the primary reason to do it. But there is a secondary benefit, which is, you might improve the quality of work and the quality of outcomes for people who are the consumers here. So if I were to think about areas where we wanna expand or be thoughtful about how much we’re paying people, this is certainly one of the areas.

JENA: If we think about how health systems are trying to improve care, I think they largely focus on structural things like are we using electronic health records? They focus on process things like, how quickly do we give people antibiotics? How quickly do we take patients who come into the emergency department with chest pain to the cardiac catheterization lab so that they can get a stent placed if they need it? These are all really important. What I really liked about this paper is that it sort of turns all of this stuff on its head, and it says that maybe there are some domains of quality that we could improve if we just paid the right people more. And I think it’s worth talking about. Why is it that if you pay nursing assistants more, we see a reduction in mortality? Is that obvious to you why we might see that?

KANFER: It does make me think like a rising tide floats all ships. So if you’re treating the perhaps perceived lower ranking people in an organization better, maybe it just has this ripple effect, not to keep the water pun going. But the vibes are just better all-around and it just makes it all feel better.

JENA: I’ll just say the following. Let’s say you’ve got a patient and they need help to go to the bathroom. If someone who is working with that person is more careful when they help do that bed to bathroom transfer, then you prevent falls. Maybe they also turn them around in the bed more often. Now you’re preventing pressure ulcers, sores, you’re preventing infections. Let’s say you also just spend more time with the person. Like one of the things that is true for nursing home patients is that the way they communicate with others, depending on how ill they are, can sometimes wax and wane, and you kind of have to know what they’re like at baseline because if they’re behaving atypically, maybe they have an infection, maybe there’s an adverse effect of a medication, all things that could affect their health, maybe even their mortality. Now, if you have a worker who is really more plugged into that person — who sees them more often, who’s not turning over after every couple of months moving to a new job — you really can then figure out when things look like they are off. So those are just a few real world examples that I think can really explain why is it that you would actually see mortality differences.

KANFER: I’m just wondering what you think, whether these findings can be applied to other venues in medicine.

JENA: I think if we’re talking about lower wage workers, I would say that it’s quite possible that the findings here might generalize to other settings outside of the nursing home. But by and large, if you look at the various things we’ve tried over time in health policy to sort of pay hospitals more if they have better outcomes did not affect the quality of hospital care. So I think that it’s quite possible that paying low-wage workers more in healthcare could have a different effect than paying higher wage workers more in healthcare.

That’s it for today’s show but I’m curious: have you ever felt that the quality of care you or a loved one received in a nursing home or a hospital was better not because of the doctors or nurses, but because of other care team members whose work sometimes goes unnoticed? Let me know, I’m at Bapu at freakonomics dot com. That’s B-A-P-U at freakonomoics.com. I’d like to thank my producer Julie Kanfer for joining me today, and thanks to you, of course, for listening. Coming up next week:

I’m going to tell you about one of the very first ideas I ever had for a study, and why it led me to wonder: Do twins cause their parents to get divorced? That’s next week on Freakonomics, M.D.

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Freakonomics, M.D. is part of the Freakonomics Radio Network, which also includes Freakonomics Radio, No Stupid Questions, and People I (Mostly) Admire. All our shows are produced by Stitcher and Renbud Radio. You can find us on Twitter at @drbapupod. This episode was produced by Julie Kanfer and mixed by Eleanor Osborne. Lyric Bowditch is our production associate. Our executive team is Neal Carruth, Gabriel Roth, and Stephen Dubner. Original music composed by Luis Guerra. If you like this show or any other show in the Freakonomics Radio Network please recommend it to your family and friends. That’s the best way to support the podcasts you love. As always, thanks for listening.

JENA: Are you gonna write a paper about paying podcast’s hosts and producers more, or no?

KANFER: I don’t have time to write papers. That’s your job.