Monopsony in Professional Labor Markets: Hospital System Concentration and Nurse Wage Growth

Link: https://www.ineteconomics.org/perspectives/blog/monopsony-in-professional-labor-markets-hospital-system-concentration-and-nurse-wage-growth

Graphic:

PDF of working paper: https://www.ineteconomics.org/uploads/papers/WP_197-Allegretto-HospCons.pdf

Excerpt:

Rolling waves of consolidation have significantly decreased the number of hospital systems in the U.S., leading to dominant regional systems. Increased concentration potentially affects industry quality, prices, efficiency, wages, and more. Much of the consolidation research is focused on merger events and estimating effects on the merged entities. In contrast, our new working paper is not based simply on merger data but takes account of the overall increase in consolidation across the country without respect to cause.

Specifically, we use the intensity of changes in hospital system consolidation in metropolitan statistical areas (MSAs) over two periods to estimate its effect on the wage growth of higher-earning professional workers—in this case registered nurses. We focus on registered nurses as a homogeneous group of workers with some degree of industry-specific education and skills. Registered nurses represent the largest single occupational classification in hospitals and urgent care centers, representing one in four workers.

Understanding the dynamics of local healthcare labor markets is critical given the importance of the sector for the U.S. economy; even more so in the wake of the pandemic amid continued uncertainty around long-term effects (e.g., early retirements, career shifts, education delays). Moreover, labor shortages among hospital-based nurses, which may be a symptom of monopsony, have been endemic in the industry for many years. The wages of nurses were stagnant between 1995 and 2015 despite increasing demand for healthcare over the same timeframe even as it was the only sector that added employment during the Great Recession. Explanations for the stagnation of nurse wages—in one of the more highly unionized professional occupations in the country—are not readily apparent.

Author(s): Sylvia Allegretto and Dave Graham-Squire

Publication Date: 19 Jan 2023

Publication Site: Institute for New Economic Thinking