post by Paul Kelleher
In response to my post this morning on international comparisons in physician earnings, Brendan Saloner asked in comments: "What about the higher cost of graduate medical education and time spent in low paying residencies, in the United States? How is that factored in?"
This is an important question, but note that the answer is unlikely to dull the force of the finding I reported, namely that the ratio of physician earnings to high-earners' income is lower in the U.S. than in [the average of] non-U.S. OECD countries. Unlike most other OECD countries, medical training in the U.S. is not financed largely by the public sector. So one might expect U.S. physicians to demand relatively more compensation in order to offset the loans they take out. But, again, physicians in other countries tend to make more as a percentage of the average high earner than do physicians in the U.S.
It is still true, of course, that physicians in the U.S. make more in absolute terms than those in other countries. But how much more, once medical education is factored in? A recent paper by Laugesen and Glied that I cited this morning addresses this issue (whether they address it adequately is for you social scientists to decide!):
If a physician [in the U.S.] practiced for thirty-five years (based on a present-value formula), the additional earnings, net of expenses, required to pay off this [average tuition] investment would amount to about $21,300 per year for a primary care physician and about $24,400 per year for an orthopedic surgeon.
Although the tuition cost of medical education in the United States borne by individuals is substantial, it cannot fully account for the observed differences between the earnings of US physicians and physicians in all other countries. The difference between annual net incomes, after practice expenses, of primary care physicians in the United States and in the second most costly country, the United Kingdom, is $27,000—somewhat more than the estimated $21,300 per year of practice required to recoup the average tuition investment in education. The difference between the annual net incomes of orthopedic surgeons in the United States and the United Kingdom is $118,000—nearly five times the estimated $24,400 difference in investment repayment costs.
According to the McKinsey report I also cited this morning, of the $643 billion dollars that the U.S. spent in 2006 beyond the spending that would be estimated by its wealth, $64 billion is accounted for by higher-than-expected physician compensation.