The year 2020 was a tough one for many people in health care.
But 2020 turned out to be a pretty good year of HCA Healthcare, the nation’s largest for-profit hospital chain.
Even amidst the business challenges of the pandemic – with cancellation of many elective procedures and an erratic hospital census – HCA booked a profit of $3.8 billion.
Now, you could argue that Mr. Hazen deserved such generous compensation. After all, HCA had a helluva year. Maybe he’s the only CEO who could have led them to such profits. Maybe he’s worth his weight in gold (although if he is, at a price of $1800/oz, he was still overpaid by $25 million).
It’s fair to point out that Hazen’s compensation – enormous as it is – is just a drop in the bucket for HCA, reflecting just 0.8% of their overall profit.
But it’s also fair to point out that $30.4 million still a lot of money. In fact, it’s 556 times what the average worker at HCA earned in 2020.
And HCA isn’t just the country’s largest hospital chain. It’s also the single biggest sponsor of residency positions in the country.
So although I’m certain Mr. Hazen did a bang-up job as CEO in 2020, I’m equally certain that HCA couldn’t have turned such a tidy profit without the labor of its over 5100 residents and fellows.
If the HCA board had chosen instead to allocate $30.4 million to its resident physicians – which, again, is a sum that reflects just 0.8% of the company’s total profit – each resident would have earned an additional $6,000. And while I’ll concede that $6,000 isn’t a ton of money, I’ll bet that a $500/month raise is more life-changing for the average resident than the $3.6 million raise that Hazen received.
Why are things this way? Why shouldn’t the CEO’s pay be cut, and the residents’ pay increased?
I hear residents make this argument all the time. Framed this way, the fact that a hospital’s CEO earns >500 times as much as the hospital’s interns seems grossly unfair. (‘Cause folks, I guar-an-tee that the CEO ain’t working 500 times harder than the intern is.)
The problem with this argument is that it relies on the listener’s sense of justice to be persuasive. That may work on a pre-schooler dividing up the afternoon snack (“It’s not fair to give Liam 556 more cookies than everyone else!”) but is highly unlikely to persuade the executives whose salaries would be cut (or the business-minded boards who employ them).
For the argument to resonate with businesspeople who spend their days focused on dollars and cents, it can’t be presented in the language of justice or fairness. It has to be presented in the language of economics – and it has to be convincing.
Chris Kempczinski, CEO of McDonald’s, had a pretty good year in 2020, too.
Kempczinski didn’t do quite as well as Samuel Hazen – he pocketed a mere $20 million in compensation – but he still earned more than 2250 times what the average McDonald’s worker earned.
Now, I’m sure Kempczinski is a hard-working guy… but McDonald’s feeds 69 million customers a day at their nearly 40,000 stores worldwide. Chris isn’t flipping all those burgers himself.
Just as for Hazen, it’s beyond dispute to say that Kempczinski couldn’t have had such a good year without the hard work of his employees. And yet, McDonald’s could scarcely pay its workers any less than it does. The majority of its workers already earn the local minimum wage, with average wages of $8.69 per hour in 2015.
So if McDonald’s workers create such value for the company’s executives, why don’t they earn more?
The answer should be obvious. Working at McDonald’s is hard work… but the average worker is easily replaceable. It’s basic supply and demand: there’s no reason to increase wages so long as there’s a steady stream of replacement workers who are willing to work at the present rates.
And this, in large part, is the fundamental problem with resident wages. Individual residents are replaceable, too.
Some people get offended when I say that. They point out – correctly – that even a July 1 intern is nonetheless a highly skilled professional.
They often go on to point out – also correctly – that when Congress granted the NRMP a specific antitrust exemption, they robbed future residents the ability to play potential employers off each other, thereby negotiating for better pay or more humane hours. Do away with the Match, they say, and then residents will be able to negotiate for their true value.
I don’t see it.
Get rid of the Match if you want, but don’t do it because you think residents will suddenly make more money. They won’t.
Last year, there were 47,675 applicants who registered for the NRMP Match. There were only 39,205 positions available.
There are literally thousands of unmatched applicants sitting at home on the couch. There are many thousands more who matched, but not in their desired specialty or at their dream program. How many of these folks would eagerly do an existing resident’s job for 90 cents on the dollar? Fifty cents on the dollar? How many would do it for free?
Look, the laws of supply and demand apply to residents just as much as they do anything else. When the supply of a particular good exceeds the demand, prices don’t rise. They fall.
But here’s what’s funny.
Not all McDonald’s employees are poorly paid.
A McDonald’s worker in Denmark, for instance, earns $22/hour – along with six weeks of paid vacation, life insurance, a year’s paid maternity leave, and a pension plan.
And no, it’s not just a cost-of-living adjustment for a more expensive area. Most McDonald’s workers in New York City still only earn the local minimum wage of $15/hour and get nowhere near those benefits.
And it’s not because the Danish workers are any less replaceable than their U.S. counterparts, either. The unemployment rate in Denmark is typically slightly higher than in the U.S., so there should be no shortage of replacement workers.
Instead, it’s because the Danish workers are the beneficiaries of decades of collective action.
In 1981, McDonald’s opened their first store in Denmark.
By that point, the company was already a global powerhouse, having grown from a single restaurant in San Bernardino to over 6000 restaurants in 27 countries. They’d achieved this near-exponential growth in part through standardization, so when they came to Denmark, they followed all of their standard procedures – including paying very low wages to their workers.
This put McDonald’s out-of-step with other employers in the restaurant sector – and attracted the attention of union organizers.
But McDonald’s asserted that it disagreed – on principle, mind you – with unionization, and refused to negotiate. By 1988, the situation reached a tipping point – and Denmark’s other labor unions brought McDonald’s to its knees.
Dockworkers refused to unload containers that had McDonald’s equipment in them. Printers refused to supply printed materials to the stores, such as menus and cups. Construction workers refused to build McDonald’s stores and even stopped construction on a store that was already in progress but not yet complete. The typographers union refused to place McDonald’s advertisements in publications, which eliminated the company’s print advertisement presence. Truckers refused to deliver food and beer to McDonald’s. Food and beverage workers that worked at facilities that prepared food for the stores refused to work on McDonald’s products.-Matt Bruenig, “When McDonald’s Came to Denmark”
There’s an important lesson here.
The Danish workers didn’t win by working individually to convince convince management of what was fair or just. They won by working collectively and making a forceful economic argument. To quote again Matt Bruenig,“McDonald’s doesn’t pay Danes high wages because of a statutory wage floor or even because the state stepped in to enforce a collective bargaining agreement. They pay high wages because back in the 1980s, Danish unions flipped a switch and turned the whole business off, and McDonald’s doesn’t want to find out whether they would do it again.”
Individually, McDonald’s workers – and resident physicians – are replaceable. But collectively, they’re not.
(Now, make no mistake, unions are no panacea. There are real limits to what they can accomplish, and certain tradeoffs that workers who unionize must accept. So in Part 2, I’ll cover some of the history and current status of resident unions.)