Health Affairs, 22, no. 6 (2003): 199-206 doi: 10.1377/hlthaff.22.6.199 © 2003 by Project HOPE	New Online   Obama's Success & Next Steps   3 Health Policy Options for President Obama   A Hybrid Proposal   Bipartisan Compromise

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The Future Of The Nurse Shortage: Will Wage Increases Close The Gap?

Abstract

 
In recent years the U.S. media have been reporting a shortage of registered nurses (RNs). In theory, labor-market shortages are self-correcting; wage increases will bring labor markets into equilibrium, and policy intervention is not necessary. In this paper we develop a simple forecasting model and ask the question: How high must RN wages rise in the future to end the RN shortage? We find that inflation-adjusted wages must increase 3.2–3.8 percent per year between 2002 and 2016, with wages cumulatively rising up to 69 percent, to end the shortage. Total RN expenditures would more than double by 2016.

Most published forecasts to date see no end to the shortage of RNs.⁴ The Bureau of Health Professions (BHPr) projects that the shortage will worsen over the next twenty years, with a shortage of 800,000 nurses projected by 2020.⁵ The U.S. nurse shortage is made even more worrisome by the fact that many other countries are experiencing similar shortages.⁶

Numerous reports have drawn attention to the consequences of the shortage of RNs, particularly for hospitals. Patient outcomes and medical errors have received the most attention, and several major studies have demonstrated that reduced nurse staffing is associated with increased inpatient mortality, postsurgical complications, hospital-acquired infections, and other negative outcomes.⁷

Hospitals have not idly watched the shortage worsen. They are actively seeking solutions to their own recruiting difficulties as well as the nationwide nursing shortage. The most obvious strategy is to offer higher wages to nurses. After remaining stagnant throughout the 1990s, inflation-adjusted median RN earnings increased 13 percent in 1997–2000, and starting RN wages increased 5.7 percent in 2000–2002.⁸ Hospitals also are offering substantial signing bonuses to newly hired RNs, in the neighborhood of $5,000 for experienced nurses.⁹

The economic principle that wage changes can bring supply and demand into balance, and thus rectify shortages, predicts that the increases in RN wages we are seeing now will end the RN shortage in the near future. Indeed, nurse shortages have occurred cyclically over the past sixty years and typically vanish with little intervention by policymakers.¹⁰ However, many observers insist that this shortage is different from those in the past, and thus concerted efforts must be made to avert a long-term crisis.¹¹ The primary reason cited for why this shortage is different is that large numbers of nurses are forecasted to retire over the next twenty years, and there is not a sufficient inflow of new RNs to replace them.¹²

In this paper we examine the historical relationship between wage increases and growth in the supply of RNs. We develop a simple forecasting model and ask the question: How high must RN wages rise in the future to end the RN shortage? We also explore the possibility that wage increases that are large enough to end the shortage will lead to a surplus of RNs in the long term. We then discuss the likelihood of observing the RN wage and supply growth that would be required to end the nurse shortage. Finally, we discuss the implications of our analysis for policymakers and the health care industry.

What Causes RN Shortages?

Top What Causes RN Shortages? Modeling Future RN Graduations Policy Implications Editor's Notes NOTES

 
Licensure delays. Nurse shortages have occurred cyclically since World War II, and this has led to a number of studies of the economics of nurse labor markets.¹³ Most of these studies agree that the delay between people’s choice of the nursing profession and the time they are licensed as nurses is a central reason for these recurrent shortages. RN licensure requires three to five years of study in a college, university, or hospital-based diploma program. Growth in wages has historically led to growth in graduations two to four years after the wage increases (Exhibit 1).

View larger version (29K): [in this window] [in a new window]   EXHIBIT 1 Real Wage Growth For Registered Nurses (RNs) And Growth In RN Graduations, 1984–1999 SOURCES: Wages are from the Current Population Survey, Monthly Outgoing Rotation Groups. Number of graduates is from the National League for Nursing. The data from 1984 through 1995 were published in Bureau of Health Professions, Health Resources and Services Administration, United States Health Workforce Personnel Factbook, 2003, www.bhpr.hrsa.gov/healthworkforce/reports/factbook.htm (22 September 2003). Data for 1996–97 and 1997–98 are unofficial from the National League for Nursing and were published in L. Levine, A Shortage of Registered Nurses: Is It on the Horizon or Already Here? (Washington: Congressional Research Service, 18 May 2001). NOTE: Wages are measured in 1999 inflation-adjusted dollars.

Poor working conditions. Some observers believe that poor working conditions in hospitals are a primary cause of the nurse shortage.¹⁶ Some hospitals are making efforts to improve their working environments in a bid to attract nurses.¹⁷ While these strategies surely are valued by nurses and improve hospitals’ competitive position in the labor market, these approaches are not likely to increase supply enough to end the shortage because the vast majority of RNs are already employed in nursing positions.

Wages and demand. Demand for RNs should decline as RNs’ wages increase during a shortage. Indeed, there is some evidence that the wages of RNs and other nursing personnel affect the demand for RNs by hospitals.¹⁸ However, demand for RNs might not be as responsive to wage increases in today’s labor market, for a variety of reasons. First, there is a broad perception that hospitals reduced their staffing as much as feasible through the mid-1990s, so there is no opportunity to make further reductions.¹⁹ Second, hospitals and health systems, which employ the vast majority of RNs, face numerous state and federal regulations that limit their ability to reduce staffing. The Joint Commission on Accreditation of Healthcare Organizations (JCAHO) is incorporating nurse staffing into its accreditation process, putting greater pressure on hospitals to maintain RN staffing levels.²⁰ California is establishing minimum nurse-to-patient ratios in 2004, and several other states are considering similar legislation.²¹ Third, as noted above, a growing body of research demonstrates clearly that nurse staffing is closely associated with patient outcomes. This research has led many health care leaders to recognize that nurse staffing affects quality of care, and thus they are reluctant to reduce staffing. Finally, RN unions are growing throughout the United States and are bargaining with employers to maintain current RN staffing levels, if not to increase them.

Exits from the RN workforce. Given the likelihood that demand for RNs will not greatly decline even as wages rise, the labor market will depend on growth in the supply of RNs to reach equilibrium. The magnitude of projected retirements from the nurse workforce raises the question: Is it possible to expand the number of newly licensed RNs enough to meet forecasted demand? Newly licensed RNs come from two sources: graduates from U.S. nursing education programs, and foreign nurses who immigrate and obtain their licenses. International migration of nurses could mitigate the severity of the RN shortage in the short term but is unlikely to offer a long-term solution. A majority of countries in the World Health Organization report nurse shortages, and hospitals face increasing pressure to limit their recruitment of foreign nurses. Moreover, international recruitment is expensive, costing approximately $10,000 per nurse and requiring up to two years to complete the immigration process.²² Thus, growth in the number of new RNs will be primarily a function of the number of people who want to pursue nursing education and the capacity of the educational system to accommodate them. The model of RN supply we developed focuses on the former variables in this function.

Modeling Future RN Graduations

Top What Causes RN Shortages? Modeling Future RN Graduations Policy Implications Editor's Notes NOTES

 
A simple model. The question underlying our forecasting model is: How much growth in graduations is needed each year to meet projected demand? The forecasting model developed by the BHPr is the starting point for our analysis.²³ In the BHPr model the supply of RNs is affected by the number of new entrants to nursing and the number of exits. These forecasts assume that trends in demand, entry, and exit follow their historical patterns. In our model we maintain the assumptions about demand for RNs and exit from the labor market; however, we allow wage changes to affect the number of new entrants to the RN labor force, thus allowing supply to change as wages change.

To predict the effect of wage changes on the growth of RN graduations, we estimate regression equations with growth in the number of graduations from RN programs as the dependent variable, and past real wage growth as the explanatory variable.²⁴ Two equations are estimated, one with a three-year lag of wage growth and one with a four-year lag. We estimate two additional equations with past changes in the national unemployment rate as an additional explanatory variable, because the performance of the economy in general affects the supply of nurses and the decision to pursue postsecondary education.²⁵

In all four regression equations, the coefficient of lagged wage changes is 2.25–2.51 and is statistically significant at the 10 percent level. The intercept ranges from –0.022 to –0.026 but is not statistically different from zero. The coefficient of change in unemployment ranges from –0.097 to 0.053 and is not statistically significant. The R-squared ranges from .34 to .60. These results demonstrate that the change in past wages is a key determinant of changes in RN graduations.

Using the coefficients of the regression equations, we calculate the wage growth needed for supply and demand to equal each other in 2020. Several assumptions underlie these calculations. First, as discussed above, we assume that demand for RNs and exits from the labor pool do not vary from the BHPr forecasts. Second, we assume that wages can increase as much as needed to induce the required number of people to enter RN education programs. Third, we assume that wages do not increase more than necessary for the market to be in equilibrium in 2020. Fourth, we assume that nursing schools can expand as needed to produce the required numbers of graduates. Fifth, we assume that unemployment rates will not affect graduations, because the coefficient of the change in unemployment rates is statistically indistinguishable from zero in both equations. We base our estimates of wage growth in 2000, 2001, and 2002 on data published by the Bureau of Labor Statistics and the National League for Nursing (Exhibit 2).²⁶

What about cycles of shortage? The simple model presented above does not reflect the fact that nursing shortages are historically cyclical. Real wage growth could be greater than 3.8 percent as a shortage widens in the short term, and greater wage growth could lead to an oversupply of RN graduates in the long term. Thus, it is useful to make this model fully dynamic—that is, to allow wage growth to vary with the severity of the shortage.

It is impossible to estimate regression equations that relate the severity of shortages with wage growth because existing data are inadequate to measure nurse shortages over time. The severity of shortages is typically measured with anecdotal evidence, such as the number of hospitals that complain of shortage and the number of advertisements for RNs in the newspaper.²⁷ These measures are not objective and do not lend themselves to consistent measurement over time.

For our cyclical model, we assume that wage growth is approximately two percentage points lower than the percentage of RNs the labor market is short, measured as the difference between demand forecasted by the BHPr and the supply forecasted by our model. We use the coefficient of our regression equation with a four-year lag to estimate the effect of wage changes on graduation changes.

To start our model, we observe that wage increases between 2002 and 2004 can be predicted from some high-profile labor contracts negotiated last year. The California Nurses Association established contracts with Kaiser Foundation Hospitals and Sutter Health System hospitals that are likely to result in real wage growth of approximately 4 percent.²⁸ These predetermined growth rates will produce 6.9 percent annual growth in graduations through 2008. Exhibit 3 presents our forecasts of wage growth and supply growth in subsequent years.

View larger version (28K): [in this window] [in a new window]   EXHIBIT 3 Projected Change In Shortage/Surplus Of Registered Nurses (RNs) When Wages Respond To Magnitude Of Shortage/Surplus, 2002–2020 SOURCE: Authors’ projections based on regression equations based on data from the Current Population Survey (U.S. Bureau of the Census), National League for Nursing, Bureau of Labor Statistics, and Bureau of Health Professions. NOTE: The projections are based on a regression equation with change in nursing graduations as the dependent variable and change in wages lagged four years as the independent variable. An intercept is included in the equation.

Limitations and assumptions. This paper represents a first attempt to create a dynamic model of RN wage growth and supply. All forecasting models are subject to a number of limitations, the most important of which is the assumption that relationships between key variables will not change over time. Any changes in the underlying features of nurse labor markets, such as the structure of hospital work performed by RNs or the relative attractiveness of nonwage characteristics of nursing, can change the responsiveness of supply and demand to wage changes. However, most forecasts of labor markets are based on "straight-line" projections, so the models presented here are an improvement over the literature to date.

"The shortage will not end without sizable RN wage and graduation growth every year for at least the next ten years."

Some assumptions underlying our models are very strong. Perhaps the strongest is that demand for nurses will not vary from the BHPr forecast. As wages increase, demand for RNs should decline, so our predictions of the magnitude of wage increases needed to close the gap between supply and demand may be too high. However, as discussed above, there are numerous barriers to employers’ reducing their demand for RNs.

The assumption that RNs exit the labor market in the same pattern as forecasted by the BHPr also could be unrealistic. As wages increase, licensed nurses might be less likely to exit the labor market.

A third, crucial assumption is that nursing schools can increase graduations to meet demand for nurses. Many RN education programs are in publicly funded colleges and universities, particularly community colleges, and current state and federal budget deficits could prevent them from expanding programs as much as is necessary. Perhaps more important is the shortage of nursing faculty; numerous nursing programs have been forced to reduce admissions because of a lack of faculty, and future faculty retirements are likely to make the problem worse.²⁹ However, despite these constraints, nursing education enrollments have expanded over the past two years.³⁰ Federal and state funding has been allocated specifically to increase the number of nursing students.³¹ Hospitals also are funding nursing education slots directly, thus enabling cash-strapped programs to expand.³² If these strategies do not continue to increase the number of nursing students that can be accommodated, the nurse shortage could last much longer than we have forecasted.

Finally, this forecasting model assumes that there will not be a much change in international migration of RNs. Many observers have raised concern about whether there are enough nurses willing to immigrate to solve the U.S. shortage, how ethical it is to recruit nurses from countries facing their own shortages, and the effect of international recruiting on the quality of hospital care.³³ Although employers are likely to continue to recruit internationally to fill their vacancies, the declining supply of international nurses will limit the effectiveness of this approach.

Policy Implications

Top What Causes RN Shortages? Modeling Future RN Graduations Policy Implications Editor's Notes NOTES

 
The analyses presented here indicate that this RN shortage is different from past shortages. Historically, RN shortages have lasted three to eight years and have been followed by periods of equilibrium or surplus of similar length. Our forecasts indicate that at least ten more years of shortage are likely, even if employers can increase wages as much as forecasted here and nursing education programs can increase graduations as required.

Given the likelihood that this shortage will last a long time, and that ending it is dependent on large wage increases and growth in RN education, it is important that public policies support these labor market adjustments. In particular, reimbursements to facilities that employ RNs need to reflect the growing cost of RN labor. State and local governments must increase the size of the RN programs they fund and expand loan programs so that private RN education is attainable.

Industry strategies. The health care industry itself also can support the labor market’s movement toward equilibrium. Many hospitals have established programs to directly support RN education with local colleges and universities, thus expanding the number of students who can be accommodated in the educational system. Employers also must ensure that working conditions for RNs are satisfactory and competitive with other professions.

Another strategy that employers can undertake is the adoption of technologies in the care setting that complement nursing labor, such as electronic medical records and well-implemented information systems.³⁴

Possible surplus. Our models show that in the long term the labor market could return to a surplus of RNs, perhaps as soon as 2015. We do not think that health care leaders should fret too much about this possibility. While nursing could indeed return to surplus status, this is not likely to occur for a long time, if ever. More importantly, the shortage will not end without sizable RN wage and graduation growth every year for at least the next ten years. Achieving such continuous growth will be difficult and might not even be possible.

From a societal perspective, a surplus of RNs is a less serious problem than a shortage is. The social detriment of inadequate patient care resulting from a nurse shortage almost certainly outweighs the social harm of short-term job loss for some people. If a surplus does emerge, RNs can seek employment in other fields of work, as they do now. Over the past decade RN unemployment rates have not risen above 1.5 percent, even during years in which a shortage was believed to exist.³⁵ RN education provides an excellent background for management, scientific, and customer-oriented employment. Thus, it will be beneficial for both the health care system and future nurses to recognize the seriousness of this nursing shortage and respond accordingly.

Editor's Notes

Top What Causes RN Shortages? Modeling Future RN Graduations Policy Implications Editor's Notes NOTES

 
The authors appreciate the comments of Jeff Lutz, Lawrence Mawn, and the audience of an early presentation of this work held at the UCSF School of Nursing, Department of Community Health Systems. All analyses in this paper are the work of the authors, and they are responsible for any errors.

Joanne Spetz is associate director of the Center for California Workforce Studies at the University of California, San Francisco (UCSF), and assistant adjunct professor in the UCSF School of Nursing. Ruth Given is director of health care research at Deloitte Consulting in Los Angeles.

NOTES

Top What Causes RN Shortages? Modeling Future RN Graduations Policy Implications Editor's Notes NOTES

 

1. P.I.Buerhaus, "Is Another RN Shortage Looming?" Nursing Outlook 46, no. 3 (1998): 103–108; [CrossRef][ISI][Medline]P.T.Kilborn, "Current Nursing Shortage More Serious than Those of Past," New York Times, 23 March 1999; and P.I.Buerhaus and D.O. Staiger, "Trouble in the Nurse Labor Market? Recent Trends and Future Outlook," Health Affairs (Jan/Feb 1999): 214–222.
2. National Center for Health Workforce Analysis, Bureau of Health Professions, Projected Supply, Demand, and Shortages of Registered Nurses: 2000–2020 (Rockville, Md.: Health Resources and Services Administration, 2002); and HSM Group Ltd., "Acute Care Hospital Survey of RN Vacancy and Turnover Rates in 2000," Journal of Nursing Administration 32, no. 9 (2002): 437–439.[ISI][Medline]
3. HSM Group Ltd., "Acute Care Hospital Survey."
4. J.Coffman and J. Spetz, "Maintaining an Adequate Supply of RNs in California," Image—The Journal of Nursing Scholarship 31, no. 4 (1999): 389–393; P.I.Buerhaus, D.O. Staiger, and D.I. Auerbach, "Implications of an Aging Registered Nurse Workforce," Journal of the American Medical Association 283, no. 22 (2000): 2948–2954; [Abstract/Free Full Text]L.Levine, A Shortage of Registered Nurses: Is It on the Horizon or Already Here? (Washington: Congressional Research Service, 18 May 2001); and K.Maher, "Enrollment in Nursing Rises, but Crisis in Field May Linger," Wall Street Journal, 27 May 2003.
5. BHPr, Projected Supply, Demand, and Shortages.
6. L.H.Aiken, S.P. Clarke, and D.M. Sloane, "Hospital Staffing, Organizational Support, and Quality of Care: Cross-National Findings," NursingOutlook 50, no. 5 (2002): 187–194; International Council of Nurses, "Global Issues in the Supply and Demand of Nurses," SEW News, www.icn.ch/sewjan-march03.htm (22 September 2003); and P.Reilly, "Importing Controversy," Modern Healthcare (31 March 2003): 20–24.
7. J.Needleman et al., "Nurse-Staffing Levels and the Quality of Care in Hospitals," New England Journal of Medicine 346, no. 22 (2002): 1715–1722[Abstract/Free Full Text]; and L.H.Aiken et al., "Hospital Nurse Staffing and Patient Mortality, Nurse Burnout, and Job Dissatisfaction," Journal of the American Medical Association 288, no. 16 (2002): 1987–1993.[Abstract/Free Full Text]
8. Bureau of Labor Statistics and Bureau of the Census, Current Population Survey (various years); and E.S.Robinson, "Nursing 2002 Salary Survey," Nursing 32, no. 4 (2002): 46–49.
9. Nurseweek, a weekly publication sent to RNs, carries a number of advertisements that feature signing bonuses.
10. P.I.Buerhaus, "Dynamic Shortages of Registered Nurses," Nursing Economics 9, [no.?] (1991): 317–328.[Medline]
11. Buerhaus and Staiger, "Trouble in the Nurse Labor Market?"
12. Buerhaus et al., "Implications of an Aging Registered Nurse Workforce."
13. The earliest economics research on nurse labor markets was conducted by Donald Yett. D.E. Yett, An Economic Analysis of the Nurse Shortage (Lexington, Mass.: Lexington Books, 1975).
14. E.Spratley et al., The Registered Nurse Population, March 2000: Findings from the National Sample Survey of Registered Nurses, bhpr.hrsa.gov/healthworkforce/reports/rnsurvey/rnss1.htm (22 September 2003).
15. C.R.Link, "Labor Supply Behavior of Registered Nurses: Female Labor Supply in the Future?" Research in Labor Economics 13 (1992): 287–320; V.L.Phillips, "Nurses’ Labor Supply: Participation, Hours of Work, and Discontinuities in the Supply Function," Journal of Health Economics 14, no. 5 (1995): 567–582[CrossRef][ISI][Medline]; and C.S.Brewer, "The Roller Coaster Supply of Registered Nurses: Lessons from the Eighties," Research in Nursing and Health 19, no. 4 (1996): 345–357.
16. J.Coffman et al., Nursing in California: A Workforce Crisis (San Francisco: California Workforce Initiative, 2001).
17. S.Russell, "One for Every Four Patients under Unions’ Formula," San Francisco Chronicle, 20 July 2001.
18. J.Spetz, "The Effects of Managed Care and Prospective Payment on the Demand for Hospital Nurses: Evidence from California," Health Services Research 34, no. 5, part 1 (1999): 993–1010.[ISI][Medline]
19. Coffman et al., Nursing in California.
20. Joint Commission on Accreditation of Healthcare Organizations, Health Care at the Crossroads: Strategies for Addressing the Evolving Nursing Crisis, August 2002, www.jcaho.org/about+us/public+policy+initiatives/health+care+at+the+crossroads.pdf (4 September 2003).
21. J.Spetz et al., Minimum Nurse Staffing Ratios in California Acute Care Hospitals (San Francisco: UCSF Center for the Health Professions, 2000).
22. Reilly, "Importing Controversy."
23. Spratley et al., The Registered Nurse Population.
24. We inflation-adjust wages using the Consumer Price Index.
25. Spetz, "The Effects of Managed Care and Prospective Payment"; and D.McVicar and P. Rice, "Participation in Further Education in England and Wales: An Analysis of Post-War Trends," Oxford Economic Papers 53, no. 1 (2001): 47–66.[Abstract/Free Full Text]
26. Median weekly earnings for RNs for 2000 and 2001 were obtained from the Bureau of Labor Statistics, Employment and Earnings, January issues of relevant years. Growth in entry-level wages was obtained from E.S. Robinson, "Nursing 2002 Salary Survey," Nursing 32, no. 4 (2002): 46–49.
27. K.Grumbach et al., "Measuring Shortages of Hospital Nurses: How Do You Know a Hospital with a Nursing Shortage When You See One?" Medical Care Research and Review 58, no. 4 (2001): 387–403.[Abstract/Free Full Text]
28. C.Heredia, "Nurses OK Contract with UC: Better Benefits May Lure More to Profession," San Francisco Chronicle, 22 June 2002; and G.Raine, "Kaiser, Nurses Reach Accord; Union Wins Bid to End Overtime," San Francisco Chronicle, 7 September 2002.
29. M.Paolucci, "Faculty Shortage Forces Schools to Reduce Admissions," Nurseweek (South Central) 14–15 (Special Edition, 10 June 2002); and L.E.Berlin and K.R. Sechrist, "The Shortage of Doctorally Prepared Nursing Faculty: A Dire Situation," Nursing Outlook 50, no. 2 (2002): 50–56.[CrossRef][ISI][Medline]
30. Maher, "Enrollment in Nursing Rises."
31. BHPr, "Nurse Reinvestment Act of 2002," bhpr.hrsa.gov/nursing/reinvesttext.htm (4 September 2003); and Office of the Governor, State of California, "Governor Davis Announces Nurse Workforce Initiative," Press Release (Sacramento: Office of the Governor, 23 January 2002).
32. L.Rapaport, "$15 Million Gift Will Tackle Nursing Shortage," Sacramento Bee, 23 March 2003.
33. E.E.Glassel-Brown, "Use of Immigration Policy to Manage Nursing Shortages," Image—The Journal of Nursing Scholarship 30, no. 4 (1998): 323–327; Reilly, "Importing Controversy"; and International Council of Nurses, "Global Issues."
34. M.J.Ball, C. Weaver, and P.A. Abbott, "Enabling Technologies Promise to Revitalize the Role of Nursing in an Era of Patient Safety," International Journal of Medical Information 69, no. 1 (2003): 29–38.[CrossRef]
35. BLS, Employment and Earnings, January issues of various years, as cited by Levine, A Shortage of Registered Nurses.

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