Chapter 8 Nurses in Hospital and Long- Term Care Services

Introduction and Overview  Nurses single largest group of health professionals  This chapter discusses role of nurses in hospitals and long-term care although they work in many more health care settings.  There are substantial differences in nurse-to- population ratios among countries (Table 8.1), but also much variation in such ratios among countries with similar income (Table 8.2).

Introduction, Cont.  Estimated elasticity of nurse-to-population with respect to share of GDP in country devoted to health care is  Nurse and physician density highly correlated among countries, but correlation <1.

Key Attributes of Nursing Markets  Predominance of females  Importance of non-financial job attributes to nurses  Widespread perception of excess demand for nurses (“shortages”)  Economic concept of shortages and surpluses in labor markets different from popular concept

Supply of Nurses: Too Many or Too Few: Economic Concepts  Need-based definition of shortage  Shortage to economists means that quantity demanded for nurses exceeds quantity supplied at the current market wage (Fig. 8.1).

Fig Definition of Shortage: Economic and Noneconomic Approaches

Fig Conclusions about Shortage or Surplus Using Different Analytic Approaches

Different Approaches for Defining Shortage Areas Lead to Different Designations  Also differences in policy solutions. Noneconomic approach does not allow for market clearing.  There may be impediments to market clearing that economics recognizes, i.e., wage rigidities or at least lags in wage adjustment

Role of Public Regulation  Under public financing and provision of health care systems, may be advantageous for state to maintain low (rather than market-clearing) wage rates  See Fig. 8.3

Fig Nurse Shortage in a Regulated Market

Governments Can Reduce/Eliminate Nurse Shortages by  Allowing the nurse wage rate to increase (even if held below market clearing rate)  Implementing public policies that increase nurse supply (e.g., recruit more nurses from other countries)  Both approaches have shortcomings (and advantages)

Monopsony Power  What is a monopsony and under what conditions does it arise?  Contrast with a competitive labor market

Fig Nurse Shortage Under Monopsony

Questions about Monopsony  Why does the MLC curve lie above the labor supply curve?  In what specific way does the MLC guide employer decisions?  What does the MLC curve look like in a competitive labor market?  Why might policymakers and others confuse monopsony with a shortage as economists define shortage?  Why is the equilibrium inefficient in a monopsonistic labor market?

Gap between Marginal Revenue Product of Labor and Wage E=(MRP-w)/w=1/ε (8.1)  Where ε = elasticity of the supply of labor to the employer with respect to the wage  E measures the departure of wages paid to employees from their marginal revenue product in percent  E is often interpreted as a measure of “exploitation,” or more precisely as amount of employee exploitation.

Empirical Estimates of Nurses’ Supply Response to a Wage Change  Assess (1) by estimating elasticity of nurse supply to an individual hospital; (2) by determining relationship between wages and employer concentration, predicting that wages decline as hospital (product market) concentration increases  Why there should be an inverse relationship  Most elasticity of nurse supply estimates in 0.1 to 1.5 range. Implication?

Income and Substitution Effects of Wage Increase  Review income and substitution effects and why the total effect of a wage increase cannot be deduced from theory alone  Concept of a backward bending supply curve  4 considerations in evaluating effect of a wage increase on effective supply of nurses: (1) effect on hours worked per nurse; (2) effect of nurse labor force participation; (3) effect on labor supply in short- v. long-run; (4) statistical issues, such as measurement errors

Fig Labor Supply Curve: Positive versus Negative Slope

Non-wage Determinants of Nurse Labor Supply  Concept of intrinsic motivation  What do you see as potentially important intrinsic motivators (of nurse labor supply)?

Nurses in Production of Hospital Services  Key question is: Do higher nurse-to-patient ratios improve quality of hospital care?  Seems logical that there may be relationship but no sound empirical evidence on this until relatively recently  More recent studies report a positive relationship between richness of nurse staffing and quality of care  Why do you think the relationship is hard to demonstrate empirically in rigorous fashion?

Nurse Staffing and Quality of Hospital Care  Cross sectional studies  Longitudinal studies  Public policy responses—California in U.S.  Theory behind minimum nurse staffing requirements

Fig Optimal Mix of Hospital Labor Inputs

Nurses in Production of Nursing Home Services  Distinction between “acute” and “long- term” care (LTC)  What is included in LTC?  Nursing home staffing—levels and mix

Effects of Economic Factors on Nurse Staffing and Mix  Dominance of for-profit firms in nursing home sector in contrast to hospitals  Relationship of product market to labor market—price taking for considerable output by nursing homes  Two-part pricing of product discussed elsewhere in text in context of physician decision to accept Medicaid

Empirical Evidence on Effects of Nurse Staffing on Nursing Home Quality  Relationship simpler to assess than for hospitals. Why so?  Empirical evidence on relationship  Public policy