The Earnings and Employment of Nurses in an Era of Cost Containment

Previous research on the labor market for nurses has demonstrated substantial wage and employment gains for nurses during the 1980s and into the early 1990s, some of the gain driven by increased labor demand. This paper documents the decline in real wages for nurses beginning in the early 1990s using individual data for 1988-1998 compared to college educated females and other workers in the health care industry. At the same time, there was an increasing skill premium for RNs reflected in the return to education and experience. Movements of RNs out of hospital employment and changes in the hospital/non-hospital wage differential explain a small portion of the decline. However, changes in measured characteristics and their returns explain very little of the decline, suggesting that the relative wage decrease is driven by a decline in the demand for RNs and increased cost constraints. To support this we show that RNs employed in metropolitan areas with a strong managed care presence earn lower wages than RNs in areas with less managed care. Introduction Previous research on the labor market for nurses has demonstrated substantial wage and employment gains for nurses during the 1980s (Schumacher, 1997; Walton, 1997, Krall, 1995). When compared to college educated women, for example, registered nurses (RNs) earned about 11 percent higher wages in 1975, while in 1993 RNs realized a 42 percent wage advantage (Schumacher, 1997). Licensed practical nurses (LPNs) made similar gains when compared to females with between 13 and 15 years of schooling. The gains in nursing relative and absolute wages are thought to have been driven by demand increases due to changes in health care technology, hospital staffing patterns, and public and private third party reimbursement policy. Beginning in the early 1990s the growth in nursing wages appears to have slowed. When compared to females with college degrees in non-health professions, the relative wage differential for RNs fell from .35 log points in 1993 to .24 log points in 1994. This decrease coincides with the slowdown in the growth of health care expenditures and rapid changes in the structure of the insurance industry. Previous research has not examined the earnings and employment of nursing personnel past the early 1990s. This paper will extend this research by examining how the changes in the health care industry have influenced the earnings and employment of nurses through 1998. Previous studies have speculated that the increased earnings and employment was driven largely by changes in demand but have not been able to identify this precisely due, in part, to the change being in one direction. This paper examines the role of demand factors by observing RN wages and employment over a period of both slower growth in health care expenditures and