THE POLITICAL ECONOMY OF HEALTH SECTOR WAGE POLICY: A CASE OF URBAN CHINA FROM 1949 TO PRESENT

Up until today, China’s health professionals and workers are mainly salaried employees in public sectors. In the socialist state, government-set salaries represent more than economic rewards for work; they reflect the redistributive priorities under the state socialist system and reveal information about the state’s political and ideological orientation. While health provider payment models for industrialized economies provide useful starting points for analysis, they are inadequate for understanding the wage policies for the Chinese health workforce and the politics behind these policies. This study examines the empirical impacts of the state’s politics and development strategies on the incentive arrangements for the urban health workforce. This study uses a combination of qualitative and quantitative research methods. The qualitative analysis addresses the political logic of redistribution and pay structures of the health workforce. It revisits and analyzes the major laws, administrative regulations, and government documents. The quantitative analysis aims to link state policies and individual health workers by examining how the policy-related factors affect health workers’ compensation. The regression models expand the Mincer's human capital earnings function and add the political capital variable to examine the impact of political loyalty on health workers’ wages. The data is synthesized from the Chinese Household Income Projects and the Chinese Household Finance Survey.The qualitative findings emphasize the balancing act of the state between competing political objectives including economic productivity, social equity, meritocracy, and political loyalty. In the Mao era, the state centralized wage-setting authority, structured national wage standards based on hierarchical positions, and paid health workers low wages but compensated them with in-kind subsidies and social welfare. In the post-Mao era, the state introduced market incentives to the health workers’ wage formula and delinked political factor from one’s compensation. The central authority decentralized the authority of setting wage standards to the ministry level in the 1980s and delegated the authority of bonus-setting to each health facility in the 1990s. But in recent years, the central government took an increasing role in building wage incentives that emphasize both position responsibility and performance of the health workforce. The regression results are in keeping with the qualitative findings, which suggest that wage distribution is a powerful policy tool that directly connects the state’s redistributive priorities to health workers' everyday lives. In particular, political loyalty (measured by Communist Party membership) and human capital (measured by education and work experience) yielded significant economic returns to health workers in 1988, before the onset of market reforms in the urban areas. Since the state’s deregulation and marketization in the 1990s, political loyalty no longer has substantial impacts on health workers’ regular wages and bonuses, while human capital continues to be an important wage determinant in the health labor markets. The intertwining of politics and economics plays a key role in the determination of health-sector wage policies, which sheds light on effective ways to improve health provider incentives and behaviors to yield more inclusive, outcome-oriented, and patient-centered health systems.