Shortage or Surplus :
Economic and NonEconomic Approaches to
the Analysis of Nursing
Labor Market
Written by Julia Lame and Stephan Gohmann
Presented by I-Teng Wang
Introduction
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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
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Economic Approach :

Economists define shortages
when quantity demanded is
greater than the quantity
supplied at the market price
Alternative Approaches
The Economic Approach
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
Model
The demand for nurse equation
ln(FTENRS) =
b0+b1ln(W)+b2ln(Poth)=b3ln(Q)+b4ln(MKTPOW)+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 < 0 & b3, b4 > 0
Model
The supply of nurse equation
ln(FTENRS) =
c0+c1ln(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 < 0 & c1, c3 > 0
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
Results
In a simultaneous 2SLS model
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The wage elasticity of
demand is 1.14
Nurses and non-nurse
labor are gross
complements
Nurses and capital are
gross substitution
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Higher alternative
wages in the
region(HWAGE)
reduce supply
Higher numbers of
part-time
nurses(FRACRN)
reduce supply
Results
In a switching model
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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
Comparison of Outcomes
between Economic and Noneconomic Approaches
Variables
Economic
Shortage/OS
D NonShortage
Economic
NonShortage/OS
D 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
Comparison
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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
Summary
The definition of shortages yields markedly
different estimates between the economic and
non-economic approaches. The noneconomic 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