Classic Monopsony or New Monopsony? Searching for Evidence in Nursing Labor Markets

Prior studies find that hospitals face upward-sloping RN labor supply, which is taken as evidence of monopsonistic power. But previous research finds little relationship across labor markets between RN wages (relative to alternative wages) and measures of market size or hospital density. This inconsistency might be resolved if “classic” monopsonistic power varies over time owing to demand-supply shocks and instability in quasi-collusive behavior. A “new” monopsony literature downplays the role of market structure, emphasizing mobility among incumbent employees. This paper attempts to sort out these seemingly disparate findings. Using data from the 1993-2002 Current Population Survey and the American Hospital Association for 1993 and 2000, measures of classic and new monopsony for RNs are calculated and found to be largely uncorrelated across labor markets. Based on micro wage data for 1993-1997 and 1998-2003, we find no evidence of classic monopsony outcomes. The wages of RNs across 240 U.S. labor markets (relative to college-educated females within the same markets) are largely uncorrelated with market size or hospital concentration. Measures of new monopsony that proxy the inverse supply elasticity and mobility across employers are calculated in each labor market. No relationship is found between these measures and inter-area nursing wages. Moreover, hospital RNs are found to possess far greater inter-employer mobility than women (or men) in general, reflecting RN skills readily transferable across employers. We reach two conclusions. First, labor supply elasticities do not provide sufficient evidence for monpsony, classic or new. One must examine whether there exist wage and/or employment outcomes consistent with monopsony. Second, whatever one thinks about the importance of monopsony, registered nurses should not be held up as a prototypical example. JEL Categories: J420-Monopsony; J300-Wages, Compensation, and Labor Costs; I100-Health Economics * For presentation at the Society of Labor Economists (SOLE) Meetings, Toronto, September 2003. We thank Alexis Boles and Wendy Dyer for their expert assistance with the AHA data, Deborah HaasWilson and Joanne Spetz for helpful suggestions on an earlier draft, and participants at a session at the International Health Economics Association (iHEA) meetings in San Francisco.