Shortage or Surplus : Economic and Non-Economic Approaches to the Analysis of Nursing Labor Market

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Shortage or Surplus Economic and Non-Economic
Approaches to the Analysis of Nursing Labor
Market

• Written by Julia Lame and Stephan Gohmann
• Presented by I-Teng Wang

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Introduction

• Medical professionals define shortages in two
  ways
• Need-based Approach Identifies the number of
  professionals needed to perform certain tasks
  based on the judgment of a medical profession
• Ratio Technique Compares the current
  professional / population ratio to a projected
  future ratio, and identifies a difference as a
  shortage

• Economic Approach
• Economists define shortages when quantity
  demanded is greater than the quantity supplied at
  the market price

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Alternative ApproachesThe Economic Approach
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The Non-Economic Approach

• The Office of Shortage Designations(OSD) uses a
  ratio technique to identify health professional
  shortage areas. The OSD calculates total nurse
  supply by adding up the number of full time
  equivalent nurses in short term general hospitals
  in a county. It then uses a fairly complex ratio
  technique based on the basic shortage criterion.
  Nurse shortages exist if the need based on this
  measure is greater than the fixed supply of
  nurses in the county

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Model

• The demand for nurse equation
• ln(FTENRS) b0b1ln(W)b2ln(Poth)b3ln(Q)b4ln(MK
  TPOW)e
• FTENRS full time equivalent nurses
• W wage
• Poth the prices of other inputs include
  non-nurse labor(OTHWAG) and the price of
  capital(PKAP)
• Q hospital services
• MKTPOW hospital market power
• b1 lt 0 b3, b4 gt 0

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Model

• The supply of nurse equation
• ln(FTENRS) c0c1ln(W)c2ln(Walt)c3ln(AVAIL)e
• Walt the alternative earnings capacity of
  nurses include prevailing nurse wages in the
  remainder of the health service area(HWAGE) and
  the county per capita income(PCINC)
• AVAIL the local availability of full part-time
  nurses in the remainder of the health services
  area(HNURSE FRACRN)
• c2 lt 0 c1, c3 gt 0

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Estimation

• Both equations were estimated as both a
  simultaneous model using two stage least
  squares(2SLS) and then as a switching model. A
  switching model here means if wages do not adjust
  then shortages surpluses will occur and wages
  are exogenous to the model

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ResultsIn a simultaneous 2SLS model

• The wage elasticity of demand is 1.14
• Nurses and non-nurse labor are gross complements
• Nurses and capital are gross substitution

• Higher alternative wages in the region(HWAGE)
  reduce supply
• Higher numbers of part-time nurses(FRACRN) reduce
  supply

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ResultsIn a switching model

• The parameter estimates are remarkably similar to
  the simultaneous model both in sign and in order
  of magnitude
• The relationship between nurses and other
  personnel is that of complements rather than
  substitutes
• The wage elasticity of demand now is 0.92
• The elasticity of supply falls from 0.59 (2SLS)
  to 0.17 now

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Comparison of Outcomes between Economic and
Non-economic Approaches
Variables Economic Shortage/OSD Non-Shortage Economic Non-Shortage/OSD Shortage T-statistic
WAGE 16,429 25,594 12.44
HWAGE 21,506 22,270 2.92
PCINC 11,567 10,729 4.05
INFMRT 94.67 105.07 2.63
NURSE 7.70 6.19 3.26
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Comparison

• Wage in the counties where the economic approach
  identifies shortages are 9165 (25,594-16,429)
  less on those counties identified as shortages by
  non-economic approach
• Economic shortage areas are those with higher per
  capita incomes (PCINC) and lower infant mortality
  rates (INFMRT) than OSD shortage areas
• Economic shortage areas trend to have lower
  alternative wages (HWAGE) than do the OSD
  shortage areas

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Summary

• The definition of shortages yields markedly
  different estimates between the economic and
  non-economic approaches. The non-economic model
  places more counties as shortage areas than does
  the economic model. On the other hand, they agree
  in only 133 cases. This dramatic difference in
  results implies that both approaches to shortages
  must be recognized in the health care debate,else
  policy makers may act to alleviate shortages
  which do not exist