I. Introduction
In 1995, the average American surgeon earned more than 269,000, while the average family practice doctor earned 131,200.
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While these incomes place even the worst paid practicing doctors in one of the best compensated professions in
the United States, there are inarguably large differences in income across specialties within medicine. Such large differences seem odd in light of the fact that all doctors
undergo their most rigorous selection process in the competition to enter medical school, rather than during specialty selection.
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There are at least four possible explanations for such large premiums: • First, surgeons and other specialist physicians tend to work longer hours than
do generalist physicians—specialists would earn a higher salary even at the same wage.
• Second, specialists spend more years in residency and fellowship training than generalists; the higher salaries may be a compensating differential for these
extra years. • Third, even before any training takes place, some people may be better suited
to perform the activities of a specialist than others. Being a specialist might require more dedication to keeping up with new scientific and clinical devel-
opments, a sunny temperament that more happily puts up with irregular sched- ules, more manual dexterity, or even just a higher IQ. As long as these
attributes are relatively rare in the population, those activities that require them will enjoy a salary premium.
• Finally, despite my curt dismissal of the possibility in the first paragraph, the residency selection process at the end of medical school may form a substan-
tial barrier to entry into the specialized branches of medicine. The purpose of this paper is to determine the extent to which differences in
physician incomes are explained by the first three competitive market explana- tions. If these three explain most of the differences, there is little room for the
hypothesis that specialist physician labor markets are anti-competitive, at least relative to generalist physician markets. In addition to inherent scientific interest,
such a conclusion would have policy implications. For example, if specialist branches are not relatively anticompetitive, then policies encouraging the substi-
tution of generalist physicians for specialists, such as paying part of the educa- tional debt of students who choose to be generalists, will yield limited medical
care expenditure savings.
Economists have long been interested in doctors’ incomes. Adam Smith 1976 [1776] emphasizes the second explanation—a compensating wage differential for
greater training demands. He argues that doctors persistently earn more than “common The Journal of Human Resources
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1. These data are from the Socioeconomic Characteristics of Medical Practice 1997. 2. While nearly half of all students applying to medical schools get in nowhere http:www.aamc.org
studentsconsideringgettingin.htm, if willing to put in the time, nearly every graduating medical student can enter some specialized branch of medicine, though not the most selective programs or specialties.
labour,” despite free entry into the “ingenious arts and liberal professions,” because learning to be a doctor is inherently difficult; so wages must be higher to induce any-
one to undergo the “tedious and expensive” training. In their classic study of professional occupations, Friedman and Kuznets 1945
emphasize the third explanation—skill differences between specialists and general- ists. They conclude that years of experience and other observables explain about
40 percent of the income differences between specialist and generalist physicians. “Presumably, the differences that remain are largely attributable to differences in
training and skill...[M]en who specialize would probably earn higher incomes as gen- eral practitioners than those who remain general practitioners. The higher incomes of
specialists are probably not a transitory phenomenon that will lead to or be eliminated by a rush to specialization; but rather a permanent concomitant of a segregation of
practitioners by criteria related to their chances of success.” Friedman and Kuznets 1945, p.278
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As Clark 1937 notes, there are many difficulties in correctly estimating the returns to specialization. First, wage paths over the doctor’s entire career must be calculated.
A static measurement would be useless as a guide to predicting the effect of policies designed to alter occupational choices. Second, an accounting must be made for unob-
served abilities that determine both specialty selection and the wage path within the specialty. The crucial counterfactual question is: How much would a specialist
physician make as a generalist?
The modern literature on the returns to specialization within medicine—starting with Sloan 1970—has alternatively ignored the problems caused by either the need
for lifetime wage measurement or by differential specialty selection. There is no esti- mate available of lifetime rates of return when specialty choice is jointly determined
with wage. Hay 1980 estimates a joint specialty selection and wage model for physi- cians, but the partial specification of errors he uses does not permit him to calculate
all opportunity costs. Hay relies on a cross-sectional data set to estimate his model, and does not explore the implications of his results for relative lifetime returns to spe-
cialization. By contrast, Marder and Wilkie 1991 estimate lifetime rates of return, but they assume that specialty choice is exogenous.
This paper combines these two elements—endogenous specialty choice and life- time wages—in a single framework. A payoff for combining these elements is that
this paper can answer whether surgeons and other specialists really are better at every- thing than their generalist colleagues, or just better at their particular specialties.
Another related payoff is the development of some evidence on how female and minority physicians’ earnings differ from those of white and male physicians.
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The final payoff is an estimate of how important competitive market explanations are in
determining the relative lifetime compensation of specialists and generalists.
3. Their more famous conclusion in this study emphasizes the fourth explanation—noncompetitive physi- cian labor markets—for the differences between doctor and lawyer compensation.
4. If there are group differences, one obvious possibility is labor market discrimination. Questions of dis- crimination are closely intertwined with questions of competition as discrimination is most likely to thrive
in anti-competitive environments.
Bhattacharya 117
II. Background
Kategori