Brain Drain Economics 101
10.26.2004
Sassy's post on doctors leaving the country had me thinking so much I had to say something about it. She comments on the following statement by the DOLE Secretary Patricia Sto. Tomas:
"If the migration of doctors and nurses would continue, the salary of those who would be left behind would increase because they would be fewer and therefore valuable,” she said, allaying fears that the migration will result in “brain drain” and the deterioration of the Philippine health care system.
Now that fired me up. Why? Because it's crazy economics coming from someone who should have known better!!! You know I do not claim to be an economics expert, but I sure was paying attention to my professor and took down notes on my economics classes!
Consider the following explanation which I posted on comments to Sassy's post:
Defective reasoning! It’s the same “pwede na to” answer. Having been unable to curb the brain drain trend, we’ll rename it as a positive development? That’s crazy! It's over simplification: the brain drain situation is not a mere supply and demand model of doctors and their servces… In a stricter economic model, the doctors who would have been left out would have a limit to the asking price that they command to the market. That limit is due to purchasing power of his market base… Unfortunately the value of that limit even at its most favourable curve is lower than what they can earn potentially elsewhere.
Assuming quality of services doesn’t go down with decrease of supply of doctors… the assumption is hoping that the limit is raised to a higher ceiling --- so much so that it will equal the earnings outside or at least match half of it. That will never happen because the doctors will have less client base by
charging ever higher… to the point that their aggregate return (say per month) would be far less beyond this price limit --- than if they charge at a lower rate.
If you think about it, this is a little like a reverse of the Law of Diminishing returns. Diminishing returns happens when you kept increasing a factor of production (say labor in given ricefield) while others remain constant --- at a certain point X, the return will not increase but constantly trend downward. In this case however, we decrease the number of suppliers of a service. Apparently it would seem to have a direct relationship to price for a limited time until the a certain comfort zone is cracked.
The brain drain model on doctors and their services contains a market restriction based on purchasing power of the market which our esteemed DOLE secretary didn't factor in her analysis. Basic Demand-supply curve would have meant that the less doctors there are, the higher the price they can command which to a layman who would not have paid attention to his economics teacher would sound theorically correct. What makes this a wrong model is that ever increasing price toward the limit will mean less total revenue for the doctors. Which means the situation will never happen --- that limit will be at best assymptotic if not impossible a situation.
Ok, let's not call it a stupid statement, perhaps its a political move. Still, I will view it as wrong because I think Greenspan Effect will not happen to the Brain Drain phenomenon. No amount of denial and publicity of of counter-information will force people to see beyond such statesmanly statements. People who are feeling the increasing price of goods and services will know how to read what she said: it's a sweet lie too late to calm the anxiety of a people.
posted by Jdavies @ 10/26/2004,
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The Author
J.Davies
Jdavies lives in Quezon City, Philippines and has been blogging since 2002. A brand manager in a leading technology company and a freelance new media/web strategy consultant, he has refocused his blogging from personal, political & sociological observations, to marketing-related efforts and Internet trends that are relevant to his career and branding advocacies.
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