South-Western College Publishing - Economics  
Emergency in Acute Care: A Nursing Shortage
Subject Determinants of Demand and Supply, Shortages
Topic Labor Markets
Key Words Shortage, Wages, Benefits, Bonuses
News Story

There is a shortage of specialized, highly trained, registered nurses. Some hospitals are reducing patient admissions as a result. Waiting lists are likely to be longer and patients may have to travel further for attention.

One cause is that the population is aging and therefore has more health problems, while the nursing profession is seeing older nurses retire. Unfortunately, there are fewer new entrants because of plentiful and attractive opportunities for women in other industries, and the memories of cutbacks in staff due to the increase in managed care (which reduces the reimbursements that hospitals receive from insurance companies). Indeed, enrollments in nursing colleges have fallen for the last four years. The colleges have had to accept less-qualified students.

Hospitals are trying to lure full-time nurses into accepting extra part-time assignments. They are also offering hiring bonuses, as well as higher wages and better benefits. Employees who refer other nurses sometimes receive bounties.

(Updated May 1, 1999)

Questions
1. Draw a diagram of the labor market for nurses. The wage rate and the employment level should be on the axes. Mark the initial equilibrium.
  a) Over recent years, managed care has led to hospitals receiving lower reimbursements from insurance companies. What has been the effect on the wage rate and the employment level of nurses? Explain in terms of the determinants of labor demand and/or supply and illustrate on your diagram.
  b)Why might this have led to fewer people entering nursing colleges?
2. Draw a second diagram of the labor market for nurses.
  a)The demand for nurses is a derived demand. What does this mean? Explain what is happening to the derived demand for nurses and why.
  b)The supply of nurses is determined by a number of factors. What are they? Which of them have been significant recently? Has supply been increasing or decreasing as a result?
  c)On your diagram, show the changes in the demand for, and supply of, nurses, but do not alter the wage rate. Show the magnitude of the nursing shortage.
  d)Are you surprised that hospitals are paying higher wages and benefits as well as bonuses? Why or why not? Answer in terms of your diagram.
Source Peter T. Kilborn, "Registered Nurses in Short Supply at Hospitals Nationwide", The New York Times, March 23, 1999.

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