I'm late to this thread, so my apologies if I am backtracking.
One thing not yet mentioned is that, when people do "the math" about what a resident should be paid, they use 80 hours. 80 hours is the maximum that residents can work in a week. Although perhaps in some residencies residents work 80 hours each week, in most that's not true. In my IM program, residents have inpatient rotations where they routinely work ~70-75 hours per week (designed that way so that they do not break 80), but they also have elective and outpatient rotations where they work much less, usually 40-50 hours per week. In fact, for my PGY-3's fully half of their rotations are like this. And, when they are on electives, they add no business value to the institution -- if they were not there, the same work would get done. PA's don't get that -- they get the same job, every day.
Here is a seminal analysis from Stanford:
AThis paper has studied matching markets where firms compete by setting impersonal prices prior to matching. The firms’ inability to target their offers leads to greater profits, with the highest-quality firms benefiting the most. The implication is that wages are both reduced and compressed, with compression beyond the mild amount that occurs in all-pay competition among symmetric firms with the same expected distribution of quality.
See link for full discussion:
http://web.stanford.edu/~jdlevin/Papers/Matching.pdf
Amazing that so many here are more knowledgeable about economics than the professors at the Stanford Graduate School Of Business.
No one has commented upon this, perhaps not surprisingly since it's a very lingo heavy article that's hard to follow. And I'm not claiming to have read it completely nor understand everything in it. But if you read the initial summary of their model and findings, I think there is a concerning flaw. At the bottom of the 1st column on the second page, there is this paragraph:
With impersonal price setting followed by matching, there is a pricing equilibrium in mixed strategies. In this equilibrium, the expected surplus of the better hospital exceeds that of the lesser hospital by more than the difference in output with the superior worker. The reason is that the salary a hospital must offer to obtain in expectation its appropriately matched resident is less than what the hospital ranked just below it would have to offer to match in expectation with the same resident. This is because the higher-ranked hospital will, on average, offer higher wages than the lower-ranked hospital, and therefore the higher-ranked hospital faces less stiff competition than the lowerranked hospital.4 Therefore, the difference in the expected surplus of two adjacent hospitals reflects the maximum differential in a competitive equilibrium, plus the savings from the lower wage that the higher firm must pay relative to its near competitor to achieve its expected efficient quality worker.
OK, that's a mouthful. But what are they trying to say? They are suggesting (in their model) that better residents are "more productive" -- i.e. they do more work per unit time. Therefore, better hospitals (i.e. that have better "output" which in economic terms is more profit) want better workers, and are willing to pay a premium for them. But if the premium becomes too much (i.e. more than the expected profit of the better employer), then it's no longer worth it to them. The easiest sentence to understand is this one:
This is because the higher-ranked hospital will, on average, offer higher wages than the lower-ranked hospital, and therefore the higher-ranked hospital faces less stiff competition than the lower-ranked hospital.
These assumptions are problematic. First of all, "better" residents are not necessarily more profitable. The total number of patients any resident can care for is capped. Second, better hospitals may not be willing to pay more for better residents. They may be willing to pay less, and assume that the residents will pick them anyway because the benefit of training at a better hospital is a good investment in their future.
It's hard for me to tell if these problems make the overall analysis invalid. But the problem at the core is that they treat residency like any employment position -- you get paid to do a job. It's different then that, since where you do your residency can ultimately affect your career trajectory, so people may choose to sacrifice salary for "name". And the "multiplication game" example shows that the profits of the firms improve with better workers, which has nothing to do with residency. So, overall, I don't think this is a good model to explain how the match might affect residency salaries.
Then this ambiguity is a major factor why it's difficult for either party to estimate what residents 'should' be paid. Were I in their boat, I would try to ascertain this ASAP and use it as my main bargaining chip.
Be careful what you wish for. As I mentioned above, the value of a resident doing an elective, or their own independent research project (to help with their fellowship applications), is likely zero. And this could easily set various residents against each other. Peds is, in general, a huge money loser.
