Institutional Changes in Hospital Nursing
Krall, Lisi, Prus, Mark J., Journal of Economic Issues
Throughout the 1980s, the efficiency of the health care delivery system in the United States appeared to be threatened by recurrent shortages of registered nurses (RNs). Concerns over these recurrent shortages led many economists and health care specialists to explore the dynamics of the nursing labor market using neoclassical labor market analysis. Noting that wages seemed to be depressed and slow to respond to excess demand in the nursing labor market, neoclassical analysts suggested that hospitals were exercising monopsonistic power [Yett 1970]. Analysts who adopted the monopsony explanation to explain the increased demand for RNs in the 1970s and 1980s maintained that employers in the hospital industry used their market power to depress the wages of RNs, which then caused a substitution of RNs for less skilled nursing personnel [Aiken and Blendon 1981; Booton and Lane 1985; Aiken and Mullinex 1987; Aiken 1987; Link 1992; Pope and Menke 1990].
We disagree with this monopsonistic explanation for the increased utilization of RNs. While there is no question that hospitals have increased their relative use of RNs from the late 1960s through the 1980s, we believe that the reasons for this lie elsewhere. In general, neoclassical explanations fail to recognize the significance of institutional changes in the organization of the hospital workplace and historical changes in the nature of medical care delivery. In contrast, our approach to the analysis of the nursing labor market emphasizes the web of institutional forces affecting the allocation of labor and the evolution of job structures. Specifically, we argue that the increased utilization of RNs relative to LPNs and aides resulted primarily from (1) changes in the internal organization of nursing services, (2) cost containment pressures, and (3) advances in medical technology.
We begin by discussing problems with the monopsony explanation for the increased utilization of RNs. Using data on changes in the mix of nursing personnel and relative wages from 1956 to 1989, we show that the monopsonistic market explanation is inconsistent with the data. We then develop an alternative analysis of the increased utilization of RNs rooted in the institutional structure of hospital nursing.
Problems with the Monopsonistic Market Explanation for the Increased Utilization of RNs
The role of hospitals' monopsony power has been emphasized by economists concerned with explaining the increased relative utilization of RNs. Using hospital data from 1972 to 1979, Linda Aiken and Robert Blendon  show that the number of full-time equivalent RNs employed by hospitals increased 53 percent. While cognizant of the historical changes in the quality of medical care that were taking place, they argue that changes in the intensity and complexity of care could only account for a portion of this increased demand. Employing the number of patient days, the severity of patient problems, and the average length of stay, respectively, as proxies for the increased volume, intensity, and complexity of care, they conclude that only 35 percent of the 53 percent increase in RN employment could be attributed to these factors. Thus, they conclude, more than a third of the increase in RN employment resulted from some other factor, namely the effects of depressed relative wages. But this conclusion rests on the questionable assumption that these different factors contributed to increased demand for RNs in a simple additive fashion [Aiken and Blendon 1981].(1) Aiken again applies the monopsony model in explaining the continued increased utilization of RNs in hospitals during the 1980s. Aiken maintains that in addition to the sicker patients and changes in budget constraints, depressed relative wages were an important factor behind RNs' increased employment. As she argues, "when nurses' relative wages are low as compared with other workers', it is advantageous for hospitals to employ them in greater numbers and in lieu of other kinds of workers" [Aiken 1987, 642-643]. …