The Registered Nurse Labor Market
Mainstream narratives are totally anti-data and rely on assumptions like stagnant retirement age, stagnant wages in the case of a shortage, etc.
It has been a long time that we have been hearing about these registered nurse shortages. It is actually mainstream consensus. I will do a full breakdown of the labor market, then circle back to a report published by the Obama Administration.
This is a narrative that has been going on for a long time and it is understandable, particularly as a “gotcha” talking point to use against anti immigration baby boomers. In February 2016, The Atlantic published an article titled “The U.S. Is Running Out of Nurses” which was subtitled “The country has experienced nursing shortages for decades, but an aging population means the problem is about to get much worse.”
The Fifth Edition of the Pearson textbook “Professionalism in Health Care” by Sherry Makely was published in June 2016 and as early as page 17 says:
“By 2020 there will be a shortage of one million nurses in the United States.”
Here is a quote from a 2017 article by healthline.com that basically echos the exact same concern:
With a 20 percent increase in new nursing positions and a third of all current RNs expected to retire by 2020, the United States will need another 1.1 million registered nurses and advanced practice registered nurses, such as nurse practitioners, in the next five years.
And most recently, in May 2020, Senator Perdue from Georgia (who is a Republican) introduced “The Healthcare Workforce Resilience Act” which includes 25,000 employment based immigrant visas for nurses. I think that the goal is to have the lowest possible wages, but who knows. Something key to understanding the immigration-wage dynamic here is that I can be agnostic regarding the relationship between immigration and wages in general (ie not all immigrants depress wages) but in a field like healthcare where the immigrant nurses do not increase market demand for healthcare (aging populations do), you can really view it on its own.
Economic Theory Says No Shortage
The relatively stagnant wages should be a tell-tale sign that we are far from a shortage of nurses. While the focal point of the study that provided the graphs linked is actually about wage gaps, ignoring the income of male nurses (about 7%-14% of all nurses depending on the sample you pick), we can see that most nurses really aren’t seeing the pay raises that you would expect to occur in a shortage.
The locus of the wage gap is of no relevance to this, but it does exist and the increasing number of male nurses will give the illusion that there is real wage growth in a pooled sample. Looking at solely the women’s income section of the graph on the left, there was a 1.36% annual real wage growth over a 20-year period. On the ACS graph, nearly no real wage growth can be found. For women, the cumulative wage growth from about $58,000 to $64,000 is 9.375% in a 13 year period. That is a whopping 0.721% each year and in the more recent years it was flat.
Which graph should you trust? For the NSSRN survey, the response rate was only 60% and the sample size was 30,000 each year (the cumulative total was 87,903 surveyed). The ACS is from the US Census and almost certainly more accurate: the sample size was over 200,000 and the response rate is above 90%.
In the caption of the very first picture, I mentioned that I would be revisiting that source. The assumption for the economic model that yielded the 1 million shortage in nurses was no real wage growth. It is an unrealistic assumption for a resource of any kind to be scarce and its cost to just not rise at a rate higher than general inflation. This screams either a misunderstanding of the foundational principles of labor markets, or subconscious sexism leading to the conclusion that nurses salaries have “maxed out,” so we should expect them to have stagnant real wages despite a labor market shortage existing. While it is true that an LNP, in a number of select cases, can be alternative to an RN that receives a lower wage, by no means are they complete substitutes. I would go as far as to say that people (like those in the 2004 paper cited) who make this assertion that LPN’s can just be substitutes for RN’s is simply not able to define the difference between the two. I do not disagree with the view that LPN’s and RN’s will demonstrate similar patterns of wage growth because the primary locus of demand growth is the aging boomer generation, but that does not mean they are just interchangeable. In theory there should certainly be some level of malleability for real wages of registered nurses in the instance of a shortage. By the way, nurses unionize. I have a difficult time believing that union workers of any kind just don’t see wage growth during labor market shortages.
“Real wages stay the same in the long run”
I do not really consider this an argument because I am not necessarily making a long run argument. If our scarcity of nurses was noteworthy, there would be a difference between real wage growth of registered nurses and the general population. More importantly, I do not even see this as some sort of law that must govern economics. Periodically, there will be Libertarians who tell me that real wages always stay the same in long run. This sounds more like an extrapolation of theory to me. The real national income has increased over time. It does not take a socialist to believe that real wages should increase with real national income — even if they do not increase at a 1:1 ratio because a lot of that real national income growth is from capital investment in multinational corporations, there should be some level of correlation.
“Those Benefits”
The worst response I have heard or read about (also the most common) is that since the benefits of nurses are very good and some of them raise in value at a rate higher than inflation (ie health insurance), so their compensation is actually increasing. The general vibe around this assertion is unintelligent. Nobody is saying that we have a scarcity of accountants. Finding jobs with comparable wages and benefits that are not being called scarce, but demonstrate the same wage trends and keep the same benefits really makes it night and day about the reality. The statistical validity of this argument is pretty weak too, the 2011 KMPG study just presents quirky and misleading data that is not unique to the job of nurses to just suggest that nurses are unwilling to work for a fair wage. Essentially, these big brains wanted to rationalize the lack of real wage growth for nurses and promote the idea that there really is a shortage EVEN if all economic theory would suggest that they are incorrect.
Here are some quotes to describe the methodologies used to get the following figures:
Table and Graph: “Insurance costs mainly include health insurance, but also workers’ compensation, disability and life insurance, malpractice, and other costs.” Only a few of those are unique to the medical field. Malpractice insurance for nurses is significantly cheaper than for physicians. It also costs money to pay the administrative staff to manage some of these things.
Table and Graph: “Recruiting costs mainly include orientation and training costs, but also sign-on bonuses, relocation costs, advertising, health screening costs, extraordinary turnover costs, and other minor costs.” Again, orientation is not unique to nurses and much of the cost is paying people to provide it, sign on bonuses are wage/salary adjacent and would not be needed if the wage was more desirable, health screenings reduce the cost of health insurance and the hospitals pay somebody to administer them, and the high turnover rate is basically a critique of feminism. Women are exponentially more likely to bear a child than men (unsure if it is politically incorrect to say men can’t have kids anymore) and some women do not return to the labor force after having children.
Graph: “Respondents further indicated that base wages on average represent 75 percent of fully loaded payroll costs” Yes. The idea that payroll taxes, having administrators, and payroll systems that require maintenance is some unique thing about nurses is really weird.
Chart and Graph: “These hidden costs are mainly the result of nonproductive labor hours and associated opportunity costs, as well as attrition and time required to fill a permanent direct care RN position. Nonproductive labor hours on average represent 13 percent of total hours.” Do they think that it is normal to have 100% productivity in any job?
Overall, the 2011 KMPG study was clearly made with one goal: to attempt to justify resistance to giving nurses pay raises. It is pretty embarrassing to see ostensibly intelligent people cite this survey. A good rule of thumb is to be pretty skeptical when a multinational corporation published a survey where they ask other CEO’s questions. There might be a bit of a bias in there.
What About the Low Unemployment?
The unemployment for Nurses is low. Yes. I think that it could be even lower if there were not state-state certification requirements that prohibited internal migration. THThere are studies that will try to downplay how problematic these barriers are, they do exist. In fact, a study published in 1990 found that over a 5 year period, 24% of nurses worked full time continuously, and 27% worked part time continuously. Here is the full table:
So, you have a really low unemployment rate, but you also have a lot of people working part time who probably would be willing to work full time.
The national RN unemployment stays between 1% and 2% for the most part, and this sounds really low, but it really is not that big of a deal. We do not hear anyone pulling their hair out over a teacher shortage, but their unemployment rate is similar to nurses. In 2015, the unemployment number was pegged at 2.6% and in 2016 it was said to be 2.1%. So it actually had been higher than during the recession. the pre-pandemic unemployment rate for RN’s was basically what it was the entire George W. Bush era when the dialogue was how bad the future shortage will be.
What to Take Away
The totality of evidence suggests that calls of nursing shortages are empty fear mongering. The media has gone as far as to explicitly call for more nurses via immigration. Late in the month of March 2017, usnews.com published an article suggesting that immigrants could fill this non existent labor shortage. Regardless of if writers that craft these narratives are writing in bad faith, my view that the lack of real wage growth is a smoking gun of no labor market shortage. Interestingly, it seems that the theory and data are in agreement. The Obama Administration projected a massive labor market supply surplus in 2014. While it is true that select states will have RN shortages, we should normalize internal migration and expect citizens to move to where the jobs are.
