In the course of developing and simulating our theoretical model, we made the following simplifying assumptions:
- Perfectly transferable human capital
- Perfectly competitive labor markets (no wage variation within markets)
- No moving costs
We now discuss the implication of relaxing these assumptions. The assumption that the human capital stock is perfectly transferable from one location to another implies that the amount of medical knowledge and experience a provider accumulates in a HPSA (in the NHSC program or not) is fully utilizable in another location once the provider moves out of the HPSA. This further implies that the return (in the form of wages) to the current job is independent of total previous job experience. However, it is likely that while serving in a HPSA the provider accumulates certain skills and expertise (such as working with underserved populations, a better understanding of the needs of these populations etc.) that cannot be put to use in, say, an urban setting with affluent patients. If there is no perfect overlap between the skills and expertise the provider has after serving in a HPSA and the skills and expertise needed in a non-HPSA environment, then, all else constant, the mobility of providers out of HPSA is diminished, because the life-cycle income of providers with HPSA experience is lower than that of providers without HPSA experience. Nonetheless, in the context of the NHSC LRP program, the period of time spent by providers in HPSAs is in general short and therefore, the specific human capital accumulated in HPSAs should not have an important impact on the participants’ remaining career, and consequently on their probability to move out of HPSAs after completion of initial service.
We also assumed that the wage offers providers get in HPSAs are the same; by the same token, we assumed that the wages providers get in non-HPSAs are the same as well. In other words, the only wage variation in the model comes from the wage differential between HPSA and non-HPSA wages. In our simulations, we further simplified this and assumed the wages were the same in both HPSAs and non-HPSAs. A larger variation in the wages offered in HPSAs and a larger variation in the wages offered in non-HPSAs would imply a higher mobility of all providers, as they are looking for their best combination between wages and preferences. This variation in wages across locations may be the result of different labor market structures. These location-specific market forces may generate different wage rates in two different locations for the same set of skills and experience. For instance, urban areas have a set of amenities that are preferred by large numbers of providers; all else constant, in order to enjoy these amenities, providers will accept lower wages in urban areas than in rural areas.
Finally, moving costs reduce the value of another location relative to the current location and thus reduce the frequency of moves from one location to another. Consideration of moving costs should not affect the conclusions we have drawn about the conditions under which the NHSC will increase person-years in underserved areas.