January 2002

[Previous] [Contents] [Next]

Labour Costs in the Hospital Sector Revisited

by Nadeem Esmail

It has been more than six years since Cynthia Ramsay, former Health Economist at The Fraser Institute, compared the hourly wages of hospital support staff and hospitality workers. Since those numbers were compiled, one collective agreement was enacted, elapsed, and has been replaced. The wages in question have been subject to a number of increases over the last few years, and it is worth examining the issue again to see if BC's taxpayers are still paying the significant premiums calculated over six years ago. Has the government taken better account of the money spent on these non-medical support workers, or has it allowed the premiums to persist in order to avoid conflict and confrontation with these unionized workers?

Why the fuss over support worker wages? Some simple numbers illustrate the point. According to Statistics Canada's Financial Management System, BC spent $5 billion on health care in 2000/01, of which $2.7 billion went to hospital care. In other words, almost 54 percent of health spending goes to hospitals. Given that, as a rule, wages and benefits paid to hospital workers (not including fee-for-service practitioners who are paid under the Medical Services Plan) account for approximately 75 percent of expenditures in hospitals (Closer to Home, p. B93), it is well worth questioning whether the money (about $2 billion) is well spent.

Many jobs in the hospital support sector are similar to those in the hospitality sector. Both hotels and hospitals need food service personnel, cleaners, maintenance workers, cooks, and clerks. Of the 2,609 full-time equivalent HEU employees at the Vancouver General Hospital (VGH) and UBC Hospital (UBCH), there are 1678 such support workers who require no specialized or medical training for their work.¹ Of these 1,678 workers, 578 fall under 13 job titles that are directly comparable to those in the hotel sector. The comparison of the wages and potential savings that would exist if these 578 employees at VGH and UBCH were paid on par with their hotel counterparts is shown in table 1. If these HEU employees at VGH and UBCH only were paid a market wage, the two hospitals could potentially save $2.9 million a year.

Table 1: Wage Comparisons for Hospital Employees Union (HEU) and Local 40 (Greater Vancouver Hotel Union)

However, the 13 directly comparable occupations only cover 578 employees, leaving a further 1,100 employees who have no specialized or medical training. Given that the weighted average wage differential² of the 578 full-time-equivalent employees compared in table 1 is $2.68 per hour, it is possible to determine an estimated savings if the remaining 1,100 full time non-medical employees were to be paid a wage competitive with their hotel counterparts. At VGH and UBCH alone, the savings on the wages of these workers would amount to an additional $5.5 million annually (based on a full-time equivalent work year of 1,872 hours).

These two calculations together reveal the total excess expenditure on hospital support workers at VGH and UBCH. For the 1678 non-medical support workers at the two hospitals, a potential savings of approximately $8.4 million, or roughly 8.5 percent of the total HEU wage bill at the VGH and UBCH hospitals could be realized  Other hospitals across BC would likely save a proportionate amount. In fact, they may save more on their hospital support worker wage bills since the health worker unions' wage rates are determined for workers across BC, and wages in smaller cities and towns are generally lower, by roughly 33 percent (Glaeser and Mare), than those paid to equivalent positions in the city.

These simple calculations for two hospitals in Vancouver can also be extrapolated to an estimated budgetary savings for BC. According to the HEU, there are approximately 46,000 Hospital Employees Union members in British Columbia. Assuming that the percentage of non-medically trained support workers at VGH and UBCH is representative of the distribution of workers in the HEU, approximately 29,587 of these workers have occupations comparable to those in other sectors of the economy. With the weighted average wage differential of $2.68 per hour, the potential savings from paying more competitive wages to non-medical support workers is approximately $150 million a year. That means that a potential savings of 5.6 percent of provincial expenditures on hospital care could be realized if support staff wages were competitive.

With weighted average wage differentials of roughly $2.68 per hour between two closed-shop unions, and a potential savings of over $8.4 million in central Vancouver alone, the wages of non-medical support workers in hospitals are clearly more generous than those paid to similar workers in the hospitality sector.

There is no explanation for why BC taxpayers must pay hospital bakers a 32 percent premium over their hotel counterparts, or why hospital payroll clerks receive a 39 percent premium. The problem of wage premiums is a direct result of government management, where political power, rather than economic competition, determines salaries. Enormous savings in the medical system do exist, without hurting patients, but governments must enact vital and significant reforms to realize them. Not only would reforms create a health care system that is better for the taxpayers who bear its costs—it could also save them a lot of money in the process.

Notes

1 Workers who service medical equipment require specialized training, and are not counted as non-medical support workers.

2 Each wage differential is weighted by the number of employees at VGH and UBCH and then averaged. The weighted average is biased towards the differentials of the largest numbers of employees. This has the effect of minimizing the effect on the average of abnormal differentials of small numbers of employees.

31 The total HEU wage bill was estimated from a list of all HEU employees at VGH and UBCH. Employee quantities were calculated using full-time-equivalent worker numbers and all wages were set as incumbent employee (worked in the sector greater than 12 months) wages, as the vast majority of employees according to the HEU are in this category. The total HEU wage bill calculated to be $99,204,548.23.

References

Glaeser, Edward L., and David C. Mare (2001). "Cities and Skills," Journal of Labour Economics (April).

Government of British Columbia, Closer to Home: The Report of the B.C. Royal Commission on Health Care and Costs, Victoria: Crown Publications, 1991.

Ramsay, Cynthia (1995). "Labour Costs in the Hospital Sector." Fraser Forum (November), pp. 16-18.

Nadeem Esmail (nadeeme@fraserinstitute.ca) completed his B.A. in Economics at the University of Calgary, and his Masters in Economics at the University of British Columbia. He is a Health Policy Analyst at The Fraser Institute.

[Previous] [Contents] [Next]

info@fraserinstitute.ca
4th Floor, 1770 Burrard Street, Vancouver, BC, Canada, V6J 3G7
Tel: (604) 688-0221 Fax: (604) 688-8539 Book Orders: 1-800-665-3558 ext. 580

You can contact us at the above email address for any comments or information requests. Please report any dead links or technical problems.