by Kelli Marquardt, BS (applied mathematics and economics)
The supply of audiologists in the US is not on track to cover the rising demand in the next 30 years (Windmill & Freeman, 2013, 2017). This post summarizes on-going economic analyses in a pilot study of the US market for audiologists. The study goals are to establish determinants of supply and demand and estimate effects of those determinants on the market. Click here to access the full study.
Preliminary results outline three main findings:
- Demand for audiologists is price elastic while supply is relatively price inelastic.
- Costco Hearing Centers have become a substitute for hearing aid testing and fitting services and their entrants into the market are decreasing the demand for audiologists.
- The most significant determinant of supply are academic variables, specifically the number of audiology programs available to students.
Limitations of Equilibrium Analyses of Demand and Supply
As the average age in the US rises, so too does the demand for health care services geared to an aging population.1 Paired with this increase in demand is a static or even decreasing audiology work force (Windmill & Freeman, 2013, 2017; Hosford-Dunn,2017a,b,c). These statements are examples of conclusions based on observed data.
Observed data is reflective of market equilibrium. Demand and supply represent relationships between wage and employment. As the wage increases, more people are willing to work, and thus we expect to see an increase in quantity supplied. On the other hand, employers must pay their workers more, and thus we expect to see a decrease in quantity demanded. In equilibrium, the equilibrium wage equates quantity demanded and quantity supplied.
Predictions as to the reasons underlying observed inadequate supply of audiologists have been made based on observational data. Likewise, observational data have been used to make predictions for future shortfalls of audiologists in the labor market (Windmill & Freeman, 2013).
But, without a complete analysis of what factors have affected supply and demand in the past, we cannot distinguish the different determinants of quantity supplied and quantity demanded in the audiology workforce.
An Econometric Approach, Summarized
The present pilot study is the first step in identifying determinants of supply and demand in the audiology labor market. Instrumental variables and a two stage least squares regression are used to estimate both the demand and the supply equations for the Audiology labor market. All equations together with in depth description of econometric rationale can be found in the complete journal article (see introductory paragraph of this post).
Developing a Model
We first developed a general model and identification strategy to estimate quantity demanded and quantity supplied. Both were assumed to be linear functions of wage and exogenous variables. 2 A 2 stage least squares regression with instrumental variables was used to ensure estimates were consistent and unbiased (Angrist et al. 2000).
Variables were defined as follows:
- Controls: unemployment rate, per capita income, population, year and state fixed effects. These variables are exogenous to the model and affect both the supply and the demand for audiologists
- Instrumental variables (shift Supply or Demand, but not both):
- Number of audiology training programs, considered a supply shifter but not a demand shifter, as discussed below.
- Number of Costco shopping centers, considered a demand shifter but not a supply shifter.
- Percent of population 85 years and older, a demand shifter but not a supply shifter.
Identifying a Supply-shifting Variable
Supply-shifting variables affect the supply of audiologists but do not directly determine demand. We claim that the number of audiology programs is an appropriate supply-shifting variable because:
- The only way to practice as an audiologist is to obtain a degree from an accredited audiology training program.
- If the number of training programs increases, at any given wage, more students have the opportunity to attend a program and pursue an audiology career.
Therefore, the supply of audiologists will increase along with the number of audiology programs.
On the other hand, we claim that the number of audiology programs does not directly affect demand. While it is intuitive that as demand for labor rises, so too will the demand for educational programs, it is also the case that schools are slow to respond to these changes in demand due to long lags or inertia in opening new AuD programs. The effect of demand on the number of audiology programs would not be realized until several years later, if at all.
Thus, we claim that in a given state and given year, the number of programs available is not correlated with the demand for audiologists, which makes number of programs a valid instrument to use in estimating the demand equation.
Identifying Demand-shifting Variables
Demand-shifting variables shift demand for audiologists but have no direct effect on supply. We claim that both the percent of the population over the age of 85 and the number of Costcos are demand shifting variables.
Half of the population over 85 years of age experience significant hearing loss and are likely to demand hearing health services, which makes this variable a demand shifter.
Treating Costco as a demand shifter is based on the following assumptions and logic:
- As time progresses, hearing aid technology advances.
- Demand for hearing aids increases as the aging population increases.
- Costco’s corporate policy since at least 1998 has been to add Hearing Centers to existing and future stores3, such that almost all US Costco stores provide hearing aid tests and sell hearing aids to adults. By report, there are currently 482 Hearing Centers (Swearinger, 2017) in 506 US warehouses (2016 Costco Annual Report to shareholders).
- Costco hires state-licensed hearing aid dispensers and/or trains existing employees in-house to be licensed hearing aid dispensers,4 in addition to seeking to hire audiologists.
- Therefore, many people who traditionally sought out audiologists to obtain hearing aids can now chose to see a hearing aid specialist at Costco, a close substitute in demand for audiologists.
With this emerging substitute for hearing aids and associated services, we expect to see a decrease in demand for audiologists, making Costco a demand-shifting determinant.
Neither Age or Costco variables directly affect supply. The quantity of audiologists supplied is essentially the number of licensed audiologists who want to work as audiologists. This is an individual choice that entails extensive schooling and high cost to obtain the required degree and licensure. At least in the short run, it is unlikely that the percentage of people 85 years and older or the number Costco shopping centers in a state will influence an individual’s complex academic/professional decision to work as an audiologist.
Therefore, the decision to work as an audiologist is independent of the percentage of older individuals and the number of Costcos per state, making Age and Costco valid instrumental variables that shift demand but not supply.
Testing the Model
Part 2 of the study summary describes data collection methods and explains results of first-round modeling of supply and demand in the audiology workforce.
1 According to the recent study by Goman & Lin (2016), approximately 81% of people who are 80 years or over experience hearing loss, 55% of individuals 70-79 years of age experience hearing loss, and 27% of individuals 60-69 years of age experience hearing loss
2 In econometrics, exogenous variables are independent factors which are not causally related “within” the model (i.e., non-correlation with other independent variables in the regression equation). Click here for an intuitive video explaining exogeneity.
3 See Costco Annual Reports to shareholders for 1998, 2002, 2016.; also Swearinger, 2017.
4 Costco’s corporate strategy of in-house talent cultivation is manifest on its Career’s website: “Exciting opportunities, Personal and career growth, Friendly and supportive work environment, Stability, A workplace focused on ethics and obeying the law, and Great benefits”(Yang et al. undated).
Angrist, J and Krueger, AB, 2001. “Instrumental variables and the search for identification: From supply and demand to natural experiments” (No. w8456). National Bureau of Economic Research.
Goman, AM and Lin, FR, 2016. “Prevalence of Hearing Loss by Severity in the United States.” American journal of public health, 106(10), pp.1820-1822.
Hosford-Dunn, H, 2017a. New Year’s Resolution: Demand an Audiologist. Jan 3, Hearing Economics, HearingHealthMatters.org.
Hosford-Dunn, H, 2017b. How much and how low, Audiology workforce part 2. Jan 10, Hearing Economics, HearingHealthMatters.org.
Hosford-Dunn, H, 2017c. Supply and demand in the audiology labor market, part 4. Feb 21, Hearing Economics, HearingHealthMatters.org.
Swearinger, G. April 18, 2017. FTC Workshop Transcript Now Hear This: Competition, Innovation, and Consumer Protection Issues in Hearing Health Care. Federal Trade Commission.
Windmill, IM and Freeman, BA, 2013. “Demand for audiology services: 30-yr projections and impact on academic programs.” Journal of the American Academy of Audiology, 24(5), pp.407-416.
Windmill, IM and Freeman, BA. 2017. Demand an audiologist, but will there by one available? Hearing Economics, HearingHealthMatters.org.
Yang, J, Whitfield, M, McKee, C. et al. (undated). Competition with both quality and quantity – a case study.
Kelli Marquardt is an Economics PhD Candidate at the University of Arizona. After growing up in Colorado, she attended the University of Dayton and received a Bachelors of Science in Applied Mathematics and Economics in 2016. She has completed her first year in the University of Arizona Economics PhD program and plans for future research in the fields of labor and health economics. Between classes and research, Kelli also works as an teaching assistant and will teach her first college course this summer.
feature image from Bureau of Labor Statistics