Friday, March 15, was “Match Day” for medical residents.
After all the excitement has died down, some may be considering how little they will be paid for the next three to seven years. The average family medicine resident, for example, will earn $47,000 and work more hours than a physician assistant, an occupation with a median salary of $86,000 in 2010.
The match has medical students rank programs they would like to attend for the next part of their training, called residency, and the programs likewise rank the students. A computer algorithm developed by economist and Nobel Prize winner Alvin Roth matches the students and programs based on their preferences.
This isn’t the way most businesses hire new employees, so why is it used for medical residents?
Prior to the match, in the 1940s, programs recruited students at the end of medical school. But, to get a head start on their competitors, programs started making offers earlier and earlier. This didn’t work, as offers had to be made before programs knew the quality of student and students accepted offers early for fear of missing out altogether.
Under the match, students could no longer bargain with programs over salary or play one off against the other. (Students and programs participating in the match are legally bound by the matching algorithm.) In 2002, a group of former residents filed a class action lawsuit claiming that the match restricted competition and reduced salaries.
A recent paper has analyzed the match and salaries of family medicine residents from 2003 through 2011. Nikhil Agarwal of the Massachusssets Institue of Technology argued that “the match is not likely the cause of low salaries.”
His model assumes that some programs are better than others based on five program characteristics, such as National Institutes of Health funding and a measure of the variety of cases a resident will be involved in at the program. Some students prefer these programs while others prefer programs in the state where they were born, or where they went to medical school.
Since these quality measures and geographic preferences are not related to the match, Agarwal concludes that the match is not responsible for the lower salaries.
Students pay an “implicit tuition” for training at prestigious programs, or to remain close to home and family. Agarwal estimates that this implicit tuition is about $23,000 on average, almost half the $47,000 average salary for family medicine residents. He argues the limited supply of residency positions due to barriers to entry such as accreditation requirements is the more likely cause of low resident salaries.
So graduating medical students heading off to prestigious new opportunities, or staying close to loved ones, can at least be comforted that their low salaries are because of economics — not an economist.
Simon Medcalfe is an associate finance professor and the Cree Walker Chair at Augusta University’s Hull College of Business.