The Earnings and Employment of Nurses: Evidence from the 1990s

Previous research on the labor market for nurses has demonstrated rather substantial wage and employment gains for nurses during the 1980s and into the early 1990s. This paper documents the decline in real and relative wages for nurses beginning in the early 1990s. Average real wages for RNs decreased from 1993 to 1997 and, compared to college educated females, relative RN wages decreased by 2.6 percent per year over this period. Compared to other workers in the health care industry, RN relative wages decreased by about 2.2 percent per year. A decomposition of the relative wage decline reveals that little of the decline in relative RN wages can be attributed to changes in measured characteristics. Changes in the hospital/non-hospital wage differential explain a small portion of the decline consistent with the notion that as care is moving out of hospitals the relatively more demanding working conditions and high skill requirements associated with that care is moving out of hospitals as well. Overall, however, changes in the returns to characteristics explain very little of the decline, suggesting that the relative wage decrease is driven by an overall decline in the demand for RNs. In addition, we find evidence of an increasing skill premium for RNs reflected in the return to education and experience. Introduction Previous research on the labor market for nurses has demonstrated substantial wage and employment gains for nurses during the 1980s (Schumacher, 1997; Walton, 1997, Krall, 1995). When compared to college educated women, for example, registered nurses (RNs) earned about 11 percent higher wages in 1975, while in 1993 RNs realized a 42 percent wage advantage (Schumacher, 1997). Licensed practical nurses (LPNs) made similar gains when compared to females with between 13 and 15 years of schooling. The gains in nursing relative and absolute wages are thought to have been driven by demand increases due to changes in health care technology, hospital staffing patterns, and public and private third party reimbursement policy. Beginning in the early 1990s the growth in nursing wages appears to have slowed (Schumacher, 1997). When compared to females with college degrees in non-health professions, the relative wage differential for RNs fell from .35 log points in 1993 to .24 log points in 1994. This decrease coincides with the slowdown in the growth of health care expenditures and rapid changes in the structure of the insurance industry. Previous research has not examined the earnings and employment of nursing personnel past the early 1990s. This paper will extend this research by examining how the changes in the health care industry have influenced the earnings and employment of nurses through 1997. These previous studies have speculated that the increased earnings and employment are driven largely by changes in demand but have not been able to identify this precisely in part due to the change all being in one direction. This paper examines the role of demand factors by observing RN wages and employment over a period of both slower growth in