Economic Analysis of Nursing Shortage

Ricky Robbins
ECON 5980
Economic Effect of the Nursing Shortage
The US has been experiencing a steady decline in the ratio of nurses to

patients. “Estimates of average nurse vacancy rates at hospitals range from

10.2 percent to 13 percent, with one in seven hospitals reporting more than 20

percent (Spetz and Given).” This gap in healthcare provision will only be

magnified in the next 20 years as the entire “baby boomer” generation enters

retirement. People, as a general rule, need more medical care in later years of

life. Typically, employment in the nursing field has been cyclical, as with any

profession, going through periods of shortage and surplus. The vast majority of

registered nurses (RNs) are members of the baby boomer demographic. As

the US has a large influx of retiring nurses, there will be a massive shortage in

the healthcare field. With the current economic status and employment state,

there is not sufficient inflow of new Registered Nurses to replace all those who

will retire in the near future. Registered Nurses make up the largest segment of

the healthcare profession (Georgia Nurses Association). With all these nurses

going into retirement, we will have a strong need for new entrants into the

nursing profession. How can we fix this problem?

In the late 20th and early 21st century United States, there has been a

steady decline in the number of Registered Nurses in the medical field. This

paper will discuss the reasons for the shortage, from both an economic and

medical perspective, the effects of the shortage and also possible solutions for

the shortage. Several economists, as well as professionals looking at the

medical field, have analyzed this shortage. This paper will discuss some of the

research already performed by economists, describing an economic model as
1

Ricky Robbins
ECON 5980
well as report a case study from a best practice hospital in the Midwestern

United States.

This paper proceeds as follows. The following section describes the

aging nurse population and employment trends in the nursing profession over

the past ten years. Details are given on US salary data for registered nurses.

Common detractors for new potential new nurses will be discussed along with

some demographic trends in the labor supply. One important aspect of the

shortage, the lack of teaching faculty in schools of nursing, is detailed. After,

the report will explain what it means to have a shortage in an economy and

some overall reasons for this shortage in the United States. I further detail

some economic statistical evidence of how the US may be experiencing a

shortage of nursing professionals in the next few decades. The United States

healthcare field has been plagued by the effect of monopsony markets in

healthcare labor employment. This will be defined in the mid-section of the

paper. A best practice hospital’s strategy is explained as a possible “model” for

ways to overcome the looming shortage. The paper concludes with theoretical

information on the shortage and proposed solutions

The Nursing Profession and Employment Data

The median age of the nursing population in the United States is rising.

For instance “In March 2004, the average age of the RN population was

estimated to be 46.8 years of age, more than a year older than the average age

of 45.2 years estimated in 2000; and more than 4 years greater than in 1996

when the average age was 42.3 years (Rosseter, 2006, pg 3).” These nurses
2

Ricky Robbins
ECON 5980
will need to be replaced as the supply of Registered Nurses enters retirement.

The chart on the following page pictures the change in the age distribution of

RN’s from 1980 to 2004. The age gap can easily be viewed here. For

instance, “in 2000, an estimated 31.7 percent of all RNs were under the age of

40; in 2004 only 26.6 percent of all RNs were estimated to be under the age of

40 (American Nurses Association).” The problems are magnified because as

all these nurses are retiring and leaving the workforce, the “baby-boomer”

generation retiring increases the need for nursing services. The changes in the

age of the majority of nurses can be viewed over the last 20 years in the chart

pictured below.

3

Ricky Robbins
ECON 5980
Wages in different nursing settings are presented in the table below,

obtained from the Bureau of Labor Statistics.

Employment services (Nurse recruiters, etc.) $63,170
General medical and surgical hospitals 53,450
Home health care services 48,990
Offices of physicians 48,250
Nursing care facilities 48,220
Many employers offer flexible work schedules, childcare, educational

benefits, and bonuses. The table above reiterates that the demand on nurse’s time,

mental wellness, and stress levels drive the wage rate required to retain nurses higher.

Through the year 2014, employment of registered nurses is expected to

grow faster than the average occupation. Because the occupation is quite

large, many new jobs will result and this supply and demand effect will have the

nursing field creating the second largest number of new jobs among all

occupations (Bureau of Labor Statistics). Out of all healthcare jobs, nursing

takes the vast majority, with 2.4 million jobs. Registered Nurses from all types of

facilities: hospitals carrying the largest percentage going from 59.1% of the RN

population in 2000 to 56.2% in 2004, nursing homes and extended care

facilities employing above 6% of nurses, community and public health settings

decreased their nursing employment from 18.3% in 2000 to 14.6% in 2004,

nursing education rose to 2.6% and ambulatory care settings at 11.5% in 2004;

earned a median annual salary of $52, 330 with the lowest 10% earning less

than $37,300 and the highest 10% earned more than $74,760 in May of 2004

(US Bureau of Labor Statistics). For the future of nursing to look bright, wages

4

Ricky Robbins
ECON 5980
will have to rise to clear the market.

5

Ricky Robbins
ECON 5980

The Health Resources and Services Administration has looked at the

current number of nursing professionals and the aging US population and

estimated the increased need for nurses in the not so distant future. It is

concluded that the RN shortage will continue to grow, under the current trends,

due to “a growing and aging US population, high demand for highest quality of

care, an RN workforce at or approaching retirement age and difficulties

attracting new nurses and retaining the existing workforce (Health Resources

and Services Administration).” The growth in the need for nurses will have

quite a notable increase as expressed in the table on the following page, also

obtained from the HRSA:

6

Ricky Robbins
ECON 5980
Projected Number of and Demand for Licensed Registered Nurses,

2000-2020

Licensed RNs Licensed RNs FTE Licensed RN Projected Demand
Active in Nursing Workforce for FTE Licensed
RNs
2000 2,697,000 2,249,000 1,891,000 2,001,500

2020 2,705,000 2,163,000 1,808,000 2,824,900

Graphically:

7

Ricky Robbins
ECON 5980
The graph below provides another view of the need until 2020. This bar

graph below provides another way of looking at the shortage we will likely be

experiencing in the United States, as it depicts the number of projected open or

unfilled nursing positions by 2020. This information was taken from Johnson

and Johnson Services, Inc. Over the past five years, there were over 100,000

vacant positions in healthcare. Healthcare will be an ever growing job market,

with an unending need. Subsequently, the career outlook is excellent for the

nursing field. (Johnson and Johnson Services, Inc., 2002-2006).

8

Ricky Robbins
ECON 5980
The aging workforce in the United States contributes to the

aforementioned growth in the need for nurses. As we move into the 21st

century, the “baby-boomer” generation is coming into retirement. A “baby-

boomer” is defined as someone born between 1946 and 1964. This definition

implies that as of 2007, baby boomers will be between the ages of 43 and 61.

This large aging population’s health needs will increase dramatically, on

average, in retirement.

Another reason hospitals may not be able to attract nurses is built into

the economy. In a one-hospital locale, it may be easy for a hospital to drive

down the wages of its registered nurse staff. In a city or region with 2 or more

hospitals, the hospital with the lower wages will have a hard time attracting

nurses from the labor market. In this situation, hospital administrators may

work together, unlawfully, to set the wage rates for the entire market location.

This collusion is strictly outlawed and will have a detrimental effect on the labor

market for RNs. If wages can’t adjust to a shortage using the normal economic

laws of supply and demand, no new entrants will be drawn into the market and

all end up losing out.

Education

A serious factor that is further confounding the shortage in the supply of

Registered Nurses is the lack of nursing faculty in the schools and colleges of

nursing. The table below from nursingPhD.org further spells out the severity of

the educational faculty shortage:

9

Ricky Robbins
ECON 5980

Qualified Applicants Turned Away
Academic Year
by Nursing Schools in the US

2002-2003 5,283
2003-2004 18,105

64.8% (nearly two-thirds) of respondents to a survey conducted by the

American Association of Colleges of Nursing (AACN) around 2003 said the

main reason qualified they turned away qualified applicants from their

undergraduate nursing education programs was due to a shortage of faculty.

Some problems that schools and colleges of nursing have continuously run into

is a lack of qualified nursing educators at the Masters or Doctorate level to

teach college level courses. Some nurses fear this may cause administration to

lower the qualifications for new nursing faculty (American Association of

Colleges of Nursing).

Work Load/Detractors

Some detractors from the nursing field for new entrants is it is a very high

stress work-load, a strict set of qualifications for licensing and long wait periods

for admittance into training programs and schools. quot;Everyday the nurse

confronts stark suffering, grief and death as few other people do. Many nursing

tasks are mundane and unrewarding. Many are, by normal standards,

distasteful and disgusting. Others are often degrading; some are simply

frightening (P. Hingley, Nursing mirror, No. 159, 1984).quot; Much of the work

10

Ricky Robbins
ECON 5980
related stress in nursing comes from the conflict of different roles and a work

overload. One of the main tasks of the RN is to “get the patient better.” This

often times conflicts emotional support. Several reports have been done on the

consequences of these nursing shortages. “Patient outcomes and medical

errors have received the most attention, and several major studies have

demonstrated that reduced nurse staffing is associated with increased inpatient

mortality, post surgical complications, hospital-acquired infections, and other

negative outcomes (Spetz and Given).”

Lack of Diversity

One area that has been severely lacking in the nursing employment field

is diversity. Nursing in the United States has traditionally been seen as a

profession for white females. As we move on into the future, males and

members of diverse ethnic groups have been entering the nursing profession in

greater numbers than ever. This gender/racial stereotype makes itself quite

evident in the healthcare profession today, pictured in the pie chart below,

which represents out of all males in the nursing profession, what small

percentage are of a race other than non-Hispanic white.

11

Ricky Robbins
ECON 5980

Only about 6% of all US nurses in 2001 were male. Of this 6%, only

14% were members of diverse ethnic groups. This imbalance of representation

in the nursing field is quite dismal considering the recent growth in the minority

population. Data from the US Census Bureau’s American Community survey

showed a growing population of immigrants. In 46 of the US states, and the

District of Columbia, the percentage of immigrants increased from 11.1 percent

in 2000 to 12.4 percent in 2005 (Report: Diversity Growing in Nearly Every

State). Though discrimination in the nursing field has eased in recent years, it

still exists. Many men will not enter the nursing profession because of the

assumption that males in nursing are feminine or those assumptions point to a

12

Ricky Robbins
ECON 5980
profession with a sexual preference. While many men do experience the

disparate treatment as registered nurses, others have broken through the

stigma of discrimination and become very successful. “Mark Buike, RN, feels at

ease and confident as a male nurse. Buike, a Nurse II in the pediatrics ICU at

Jackson Memorial Hospital in Miami, said that any door he has wanted to walk

through has been open to him (Hilton).”

Monopsony

The definition of a shortage in the economy is “quantity demanded is

greater than quantity supplied at the market price (Lane and Gohmann, 1995,

pg. 644).” One can see the possibility of a shortage presenting itself in the

United States when examining data from the US Bureau of Labor Statistics.

One economic explanation for this shortage comes from the fact that the

demand for nurses is rising faster than the employment rate of new RNs.

“Paying a wage equal to the competitive equilibrium wage at the intersection of

supply and demand (Lane and Gohmann, 1995, pg. 645),” could help to solve

this problem. Other explanations for non-market-clearing wages can be

explained by the high demand on a nurse’s time, labor unions and the effect of

a monopsony in the labor market for nurses. With a monopsony in the labor

market, you have one demander of labor. In the case of nursing, hospitals and

hospital-like organizations have traditionally been the sole demanders of

nursing labor in a community. As the only employer of nurses in geographic

location, hospitals can pay lower wages to the RN labor force. Pictured on the

13

Ricky Robbins
ECON 5980
following page is a graphic explanation of Monopsony in the Labor Market

(Riley,tutor2u, 2006).

The monopsony employer has “significant buying power” in the labor

market. Hospitals can use this power to drive down wage rates. In the

occurrence of a monopsony employer, the company will face an upward sloping

supply curve. Students will be less willing to enter the nursing industry.

Hospitals must then pay a higher wage rate to attract RNs to their facility and to

14

Ricky Robbins
ECON 5980
attract new entrants into the nursing profession. The diagram above

demonstrates that “the profit maximizing level of employment is where the

Marginal Cost of Labor (MCL) equates with the marginal revenue product of

employing extra workers (MRPL) (Riley, 2006, Trade Unions and Monopsony

Employers).” ACL and MCL represent the labor supplies at the wage that the

monopsonist offers (ACL and at the level worth the nurses skill-set (MCL). In

this model, Eq employees are employed at the firm; the monopsonist chooses

to pay wage level of Wq. In this case, the employer will only receive the

number of employees equal to the intersection with the line ACL, which

represents the lower number of employees willing to work at this level. This

represents one theory of what is occurring in the nursing labor market. To help

and end the nursing shortage in hospitals, administrators must decide to pay

the wage rate at the profit maximizing level so nurses will enter the labor market

at those hospitals. In the next section I will discuss some social reasons

contributing to the economic shortage in nurses.

At the turn of the century, studies have shown nurses moving away from

working only in the hospital environment. Now many nurses have moved to

working in physician-owned specialty facilities. These jobs are much less

stressful than working in a hospital that runs 24/7 to facilitate all people within a

community during all times. Typically in the physician owned practices run

during the day (1st shift) and only open Monday through Friday. Based on this

movement in the nursing labor, hospitals have lost their monopsonistic power.

When the hospitals are not the only companies hiring nurses in a community, it
15

Ricky Robbins
ECON 5980
can allow for the reinstatement of market competition of wages in the

healthcare field. The common theme among all explanations is wages fail to

adjust instantaneously, creating the likelihood of involuntary unemployment. If

the monopsonistic power of the hospitals is destroyed, hospitals will be forced

to offer a more competitive wage to compete with the private practices.

Case Study

A case study was performed by interviewing Karen V. RN, nurse

recruiter from a top 100 hospital in the Midwestern United States. The interview

is summarized as follows:

• Q: How have you seen the effects of the nursing shortage at your

hospital?

• A: The shortage hasn’t really been seen at all here. It is projected that in

the shortage will hit our organization in 2012.

• Q: Why hasn’t your hospital been affected by the shortage?

• A: A hospital in today’s market has to be good at retaining a skilled

nursing workforce. Our reputation, benefits and overall company culture

provide a pleasant working environment.

• Q: What would be some good plans to implement for when the shortage

does hit your organization?

• A: You need to keep the stream of new college graduates entering the

nursing workforce at your hospital by offering internships, fellowships,

tuition reimbursement and so on. You also need to keep older nurses

16

Ricky Robbins
ECON 5980
working longer. The aging RN workforce has invaluable experience to

pass on to the new graduates. Adjust work schedules away from the 12-

hour workdays of the traditional nurse workday.

• Q: What is a main barrier for young people wishing to enter a nursing

education program?

• A: Most nursing schools have long wait periods. Some community

colleges have a 2-year waiting period after application to actually start in

the program. Major universities have waiting periods based on

qualifications. They take the best people first from year to year, based

on grade point average. Long waiting periods are due to a lack of

experienced nursing faculty to teach. Low faculty numbers provides a

high burn out rate for instructors

• Proposed Shortage Solutions:

o Implement retention/reward programs

o Maintain a happy and satisfied workforce to help embody a good

reputation.

o Government assistance (subsidies for students and teachers in

nursing)

o Hospitals participate in tuition reimbursement

o Provide incentives for retired nurses to teach

o Constantly analyze the return on Investment of the training

programs and adjust accordingly.

17

Ricky Robbins
ECON 5980
The results from the interview in the case study show several strategies

that hospitals could implement to help reduce the shortage. The policy cannot

just be put in place at one hospital for it to be effective. These strategies should

be placed similarly in hospitals throughout the United States to bring about

reform in the nursing labor market.

The Future

Policy makers in the government and other administrative roles are

implementing strategies to help regulate the shortage in nurses. In 2004,

California implemented laws that require hospitals to maintain a minimum

nurse-to-patient ratio. Organizations such as the Joint Commission on

Accreditation of Healthcare Organizations (JCAHO) monitor hospitals and

supply financial incentives for hospitals to maintain minimum staffing levels of

Registered Nurses. Another possible source of new nurses to the US labor

market is by recruiting from other countries. Migration of a foreign nursing force

will only mitigate the US nursing labor crisis in the short term and is unlikely to

provide a long-term solution. International nursing laborers may be reluctant to

enter the labor market in the United States because the majority of nurses in

the World Health Organization also report shortages in their own country’s

nursing workforce (Spetz and Given). The number of new Registered Nurses

will be a function of the amount of people wishing to pursue nursing education

and the capacity of institutions that teach nursing.

18

Ricky Robbins
ECON 5980
Proposed Wage Adjustment

Regression equations can be used to estimate the effect that wage

increases will have on the future growth of graduates from nursing programs.

In these regression equations, we will use the growth in the number of

graduates from RN programs as the dependent variable and past real wage

growth as the explanatory variable. Four equations are estimated to predict this

future growth phenomenon. The first two equations, one with a four-year lag

and the other with a three-year lag, are estimated to help determine the effect

on RN graduation rates. Two additional equations are presented with past

changes in the national unemployment rate as an explanatory variable, helping

to realize the performance of the economy in general has affected the supply of

nurses as well as the decision to pursue post-secondary education. In all these

regression equations, the coefficient of lagged wage changes is 2.25-2.51

statistically significant at 10 percent. The change in the intercept is -0.022 to

-0.026 and statistically insignificant. The coefficient that goes with the change

in unemployment ranges from -0.097 to 0.053 is also not statistically different

from 0. The R-squared statistic ranges from 0.34 to 0.60. These results

demonstrate how changes in past wages are a key determinant in the number

of RN graduations (Spetz and Given).

Using the aforementioned coefficients in the regression calculations, it is

calculated that the wage growth need for supply and demand will equate in

2020. This model is far from foolproof, given the variability of economic

19

Ricky Robbins
ECON 5980
conditions. Several assumptions underlie these calculations. It is assumed that

demand for Registered Nurses and exits from this labor market will not differ

from the forecasts by the Bureau of Health Professionals. It is also assumed

that there is no cap on the level of wage increase in nursing to encourage the

necessary number of people to enter nursing education programs. Thirdly, it is

assumed wages will not increase above the equilibrium level to reach full

employment in the nursing field in 2020. Fourth, it is assumed that nursing

schools have enough capacity to allow enough new entrants to reduce the

shortage. The fifth and final assumption in this model assumes unemployment

rates will not effect graduations from nursing programs. As mentioned in the

model, the coefficient of change in unemployment is not distinguishable from

zero in both equations (Spetz and Given). The diagram below details the

forecasted wage growth needed for RN Supply and Demand to reach

equilibrium by the year 2020. The wage growth needed for RNs in this model

would cumulatively increase by 55-69 percent, more than doubling the spending

on the nursing workforce by 2016.

20

Ricky Robbins
ECON 5980

Forecasted Wage Growth Needed For Registered Nurse (RN) Supply And Demand To Reach
Equilibrium By 2020

Regression model used for forecast
Three- Three-year lag with Four-year Four-year lag with
year lag unemployment lag unemployment

Required yearly real 3.2% 3.5% 3.7% 3.8%
wage growth, 2005–
2016
Cumulative real 55.4% 61.9% 66.3% 68.6%
wage growth, 2002–
2016
Real hourly wage in $37.12 $38.77 $39.92 $40.50
2016

SOURCE: Authors’ projections based on regression equations using data from the
Current Population Survey (U.S. Bureau of the Census), National League for Nursing,
Bureau of Labor Statistics, and Bureau of Health Professions.
NOTE: Wages are measured in 2003 dollars.

The shortage in nursing professionals is hitting hospitals all over the

United States. In October of 2007, the first member of the baby boomer

generation began to collect her Social Security benefits. This aging population

will continue to cascade into the hospital rooms and demand more nursing

services. If large numbers of new nursing staff are not recruited in the near

future, high stress levels due to overworking will be commonplace among all

healthcare professionals. Hospitals may find recruitment much easier if wage

levels will rise to meet the demand for labor. These changes will likely require a

total reform of the nursing profession and how it is viewed by society.

REFERENCES:
AllNursingSchools. “What Percentage of American Nurses are Men.” Your
Guide to Nursing Education and Careers.2007. December 3, 2007
<http://www.allnursingschools.com/faqs/men.php>

21

Ricky Robbins
ECON 5980
American Nurses Association. “Background.” NursingWorld. 2007. November
28, 2007
<http://nursingworld.org/MainMenuCategories/CertificationandAccreditati
on/AboutNursing/NumbersandDemographics/Background.aspx>
Associated Press. “Report: Diversity Growing in Nearly Every State.” U.S.
News. August 17, 2006. December 14, 2007.
<http://www.msnbc.msn.com/id/14348539>
Bureau of Labor Statistics. “Annual Wages of Nurses, doctors and other
healthcare workers.” MLR: The Editor’s Desk. November 23, 1999. US
Department of Labor. November 28, 2007
<http://stats.bls.gov/opub/ted/1999/Dec/wk3/art04.htm>
Chung, Vicki. “Men in Nursing.” Featured Stories. 2007. December 3, 2007
<http://www.minoritynurse.com/features/nurse_emp/08-30-00c.html>
Delevan, Sybil M. & Koff, Sondra Z. “The Nursing Shortage and Provider
Attitudes: A Political Perspective.” Journal of Public Health Policy, Vol.
11, No. 1. (Spring, 1990), pp. 62-80.
Georgia Nurses Association. “Fact Sheet About Nurses.” 2004.
<http://www.georgianurses.org/factsheetaboutnurses.htm>
Health Resources and Services Administration. “Severity of the RN Shortage.”
Nursing News. September 27, 2007. U.S. Department of Health and
Human Services. December 1, 2007 < http://bhpr.hrsa.gov/nursing/>
Hilton, Lisette. “A Few Good Men.” May 14, 2001. December 3, 2007.
Nurseweek. <http://www.nurseweek.com/news/features/0105/men.html>
Johnson and Johnson Services, Inc. “Job Opportunities.” Discover Nursing.
2006. December 1, 2007 < http://www.discovernursing.com/job-
opportunities>
Lane, Julia & Gohmann, Stephan. “Shortage or Surplus: Economic and
Noneconomic Approaches to the Analysis of Nursing Labor Markets.”
Southern Economic Journal, Vol. 61, No. 3. (Jan., 1995), pp. 644-653.
McNeil, Paula. “The Nursing Faculty Shortage: Adding to the U.S. Nursing
Shortage” December 1, 2007. NursingPhD.org. December 1, 2006
<http://nursingphd.org/articles/shortage.php
P. Hingley, Nursing mirror, No. 159, 1984. International Labour Organization.
“Work Related Stress in Nursing.” SafeWork. November 10, 2000.
November 29,2007
<http://www.ilo.org/public/english/protection/safework/stress/nursing.htm
>

22

Ricky Robbins
ECON 5980
Riley, Geoff. “Trade Unions and Monopsony Employers.” A2 Markets & Market
Systems. September 2006. tutor2u. December 1, 2007
<http://www.tutor2u.net/Economics/revision-notes/a2-micro-trade-unions-
and-monopsony-employers.html
Rosseter, Robert J. Nursing Shortage Fact Sheet. September 5, 2006.
American Association of Colleges of Nursing. November 28, 2007
<http://www.aacn.nche.edu/Media/FactSheets/NursingShortage.htm>
Spetz, Joanne & Given, Ruth. “The Future of the Nurse Shortage: Will Wage
Increases Close the Gap?” Health Affairs. 2003. Project Hope.
November 28, 2007
<http://content.healthaffairs.org/cgi/content/full/22/6/199>
V., Karen nurse recruiter. Professional interview. Kalamazoo, MI. November 19,
2007

23

Economic Analysis of Nursing Shortage

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Andere mochten auch

Andere mochten auch (20)

Ähnlich wie Economic Analysis of Nursing Shortage

Ähnlich wie Economic Analysis of Nursing Shortage (20)

Economic Analysis of Nursing Shortage