Shortage or Surplus: Economic and Noneconomic Approaches to the Analysis of Nursing Labor Markets

Abstract

The current health care debate creates a sharp contrast between economic and noneconomic approaches to resource allocation. Many economists believe that resorting to cost containment measures will lead to shortages in health care delivery. The definition of and response to such shortages will be critical components of the debate. Shortages are not new: they have characterized the health care labor market for decades [8; 11]. There are strong differences between the economic and noneconomic views of shortages, however. Medical professionals define shortages in two ways: a needbased approach and a ratio technique. The former identifies the number of professionals needed to perform certain tasks based on the judgment of a medical professional. The latter compares the current professional/ population ratio to a projected future ratio, and identifies a difference as a shortage [2]. A variant of the latter is the one used by the Office of Shortage Designations, which identifies health professional shortage areas. U.S. policy has been to increase supply by subsidizing the training of medical personnel if they subsequently work a period in the shortage area. The economic approach is quite different. A shortage exists when quantity demanded is greater than the quantity supplied at the market price. Economists analyze the pricing mechanisms of the marketplace, and allow for both the substitution of other inputs and technological change [3]. In certain circumstances, such as if monopsony characterizes the market, supply side policies aimed at increasing the supply of medical personnel through federal educational subsidies might worsen the problem. This paper shows the differences in outcomes between the two different approaches, using the market for nurses as an example. We develop an economic model to identify shortage areas and compare this with that derived from the medical literature and used by the federal government.