Panel Paper: Legislating Labor Demand in the Hospital Sector

Thursday, November 3, 2016 : 2:15 PM
Columbia 10 (Washington Hilton)

*Names in bold indicate Presenter

Alice Chen, University of Southern California, Charu Gupta, University of Pennsylvania and Michael R. Richards, Vanderbilt University

One perceived key ingredient for ensuring hospital quality is a robust nursing staff. Registered nurses (RNs) comprise nearly 3 million members of the US labor force, and patients’ perceptions of their experiences with medical care seem strongly influenced by their interactions with nurses.  Additionally, a recurring association in the literature is the inverse relationship between nurse staffing levels and adverse health outcomes in hospitals.  If market forces are not sufficient to drive optimal levels of nurses (i.e., hospitals cannot fully internalize the gains) – leaving hospitals’ and society’s valuations of greater nurse staffing divergent – then public policy may be necessary to force an alignment.

Such a regulatory response was the path chosen by California at the start of the 2000s. The California Nurse Staffing Law AB394 aimed to improve market function in terms of care quality by mandating a minimum nurse-to-patient staffing ratio, among other policies.  Although this legislation stands as a unique mandate imposed on the hospital sector, at least fifteen other states have considered following California’s example.

In this paper, we use this quasi-natural experiment, along with nursing workforce data from all US states (1992 – 2008), to estimate the effects of a staffing mandate on a host of labor market outcomes. We find strong evidence of a positive wage effect, which drew more nurses to the state and generated spillovers onto employment in non-hospital employment settings. Hospitals also reallocate nurses of varying skill types (i.e., educational levels) to different within-hospital duties after the mandate but do not demonstrate other compensatory behaviors that could offset higher labor expenditures. Our findings suggest that the mandate was not a symbolic gesture on the part of legislators nor costless for nurse employers. When coupled with the largely absent changes in hospital quality found in the current literature, our results strike a cautionary tone for other legislative bodies considering a similar, blunt policy instrument. Regulating hospital hiring decisions is likely to alter local labor markets but may do relatively little for actually improving the quality of services delivered.