Managing the healthcare workforce: cost reduction or innovation

Labour costs are the largest proportion of total costs in the health industry in developed countries and are a target in health sector reform. The Kennett government in Victoria introduced policies based on competition and cost reduction and the decentralisation of industrial relations through enterprise bargaining. These policies directly impacted on the health workforce leading to work intensification, labour shortages and poor morale. The Bracks government has since returned to centralisation. This paper argues that it is time for a more innovative approach to health workforce management based on recognising staff as an asset rather than a cost. The context: labour costs in the health care sector Over the past twenty years, governments throughout the world have become increasingly concerned about rising costs in the health care sector. This concern is due to fears that aging populations, increasing demands for services, greater expectations from consumers and new and expensive medical technologies and treatments will lead to unsustainable healthcare costs (Saltman et al. 1998). The largest component of health care costs in western health care systems is the cost of the labour force. The health sector has a highly educated, labour intensive workforce and in Australia the health care workforce accounts for over 70 % of total costs (Duckett 2000). Labour costs in the healthcare sector can be viewed from two different perspectives. One perspective is that