The labour market for nursing: a review of the labour supply literature

HEALTH ECONOMICS

Health Econ. 12: 465–478 (2003)

Published online 2 August 2002 in Wiley InterScience (www.interscience.wiley.com). DOI:10.1002/hec.737

HEALTH AND LABOUR

The labour market for nursing: a review of the labour supplyliterature

Emanuela Antonazzoa, Anthony Scotta,c,*, Diane Skatuna,c and Robert. F. Elliotta,b,caHealth Economics Research Unit, Aberdeen, UKbDepartment of Economics, University of Aberdeen, UKcCentre for European Labour Market Research, University of Aberdeen, UK

Summary

The need to ensure adequate numbers of motivated health professionals is at the forefront of the modernisation ofthe UK NHS. The aim of this paper is to assess current understanding of the labour supply behaviour of nurses, andto propose an agenda for further research. In particular, the paper reviews American and British economicsliterature that focuses on empirical econometric studies based on the classical static labour supply model.American research could be classified into first generation, second generation and recent empirical evidence.

Advances in methods mirror those in the general labour economics literature, and include the use of limiteddependent variable models and the treatment of sample selection issues. However, there is considerable variation inresults, which depends on the methods used, particularly on the effect of wages.Only one study was found that used UK data, although other studies examined the determinants of turnover, quit

rates and job satisfaction. The agenda for further empirical research includes the analysis of discontinuities in thelabour supply function, the relative importance of pecuniary and non-pecuniary job characteristics, andthe application of dynamic and family labour supply models to nursing research. Such research is crucial to thedevelopment of evidence-based policies. Copyright # 2002 John Wiley & Sons, Ltd.

Keywords labour supply; nursing; job satisfaction

Introduction

The decisions of NHS professionals have impor-tant effects on the quality and costs of health careprovided to patients. The need to ensure adequatenumbers of motivated and productive healthprofessionals has recently been recognised in anumber of policy documents, within the context ofa specific human resources framework for theNHS [1–6].

These policies recognise that the attitudes andmotivation of NHS staff are amongst the most

important determinants of the success of the driveto modernise the service. Policy documents pro-pose that the key values that must underpin anyplanned or proposed changes to the developmentof NHS staff are: fairness and equality in bothservice delivery and how staff are treated andvalued; flexibility of provision and conditions ofservice; and partnership, which calls for greaterinvolvement and participation in service develop-ment and planning change.

National programmes on workforce planning,education and training, personal and educationaldevelopment, recruitment and retention policies

Copyright # 2002 John Wiley & Sons, Ltd.Received 13 December 2000

Accepted 19 March 2002

*Correspondence to: Health Economics Research Unit, University of Aberdeen, Polwarth Building, Foresterhill, AberdeenAB25 2ZD, UK. E-mail: [email protected]

are deemed to be a priority area for action. Thefocus here is upon family friendly policies,flexibility of working patterns, flexibility of retire-ment schemes, annual workforce plans, and year-on-year improvement in retention rates.

However, the evidence-base for these changesand policies is unclear as little is currently knownabout the factors that influence the labour supplyof health professionals.

The aim of this paper is to examine howeconomics can contribute to our understandingof some of these issues. The review of theeconomics literature in this paper focuses on thelabour supply of nurses.

Nursing and midwifery staff constitute 45% ofthe total staff in the NHS Hospital and Commu-nity Health Services [7]. Their salary bill accountsfor almost 50% of the NHS salary bill [8].a

Nursing shortages are perceived to be a seriousissue in the UK, although they have been a cyclicalphenomenon in the UK and in other health caresystems. The current shortage (late 1990s) appearsmore problematic than the previous one (mid-1980s). There has been an increase in the demandfor health care and staff, while various supplyfactors seem likely to constrain the futurelabour supply. The nursing workforce is ageingwith the consequence that there has recentlybeen an increase in retirement rates [9]. Therehas also been a reduction of potential ‘returners’,and a fall in the number of new student nursesb

due to demographic changes and increased educa-tional qualification required for entry, as well as adrift out of the NHS towards the private sector.The balance between supply and demandseems likely to deteriorate in the short to mediumterm [10].

The paper is structured as follows. First aconceptual framework, illustrating the possibleapproaches to labour supply, is presented. This isfollowed by a review of the literature whichinitially examines the results of research intonursing labour supply in North America. Thisresearch is more extensive than research in the UKand so it also enables us to examine some of theempirical problems that have confronted research-ers in this area. Recent developments in estimationtechniques and methodological issues are re-viewed. The paper then moves on to look at thefew studies that have taken a UK perspective onthese issues. The paper identifies gaps in theAmerican as well as in the British literature andproposes an agenda for further research.

Conceptual framework

The supply side of the nursing labour market andthe different choices faced by a typical nurse can berepresented by the framework in Figure 1. Thisshows the current stock of nurses in the NHS andprivate sector and the different types of labourmarket decisions that influence labour supply. Ourliterature review focuses on hours worked from theexisting stock of nurses and the decision toparticipate or to remain out of the labour force.It does not cover withdrawal or re-entry decisionsfrom potential returners, occupational choicedecisions, retirement models.

Understanding the labour supply responses ofnurses to changes in their wage rates and otherpecuniary and non-pecuniary aspects of employ-ment allows us to predict the impact of differentpolicy actions directed at managing the flow ofservices provided by the existing stock of nurses orat managing directly the stock of nurses.

Static labour supply functions can be specifiedin many different ways. A general framework foraddressing these issues can be developed asfollows. The dependent variable is the measure ofan individual’s labour supply (annual hours ofwork or the participation rate – the proportionwho work). Given the variety of work opportu-nities available for nurses and the possibility ofoffering additional work for a nurse agency orbank, it can be assumed that hours worked arefreely chosen.c Labour supply is explained by a setof independent variables including the wage rate(W), other non-labour income (e.g. non-wageincome and income of spouse, V), non-pecuniaryjob characteristics (Z), and sociodemographic andindividual worker characteristics (S):

H ¼ f ðW ;V ;Z;SÞ

The specification can be derived from a directutility function, by solving the first order condi-tions for a maximum and obtaining the demandfor leisure (and therefore for hours of work) and acomposite consumer good. Assume the followingquasi-concave utility function [11]:

UðCt;Lt;XtÞ

in which Ct, Lt, and Xt are within periodconsumption, leisure hours and individual attri-butes, in period t. Utility is maximised subject tothe budget constraint

Ct þWtLt ¼ Vt þWtT

Copyright # 2002 John Wiley & Sons, Ltd. Health Econ. 12: 465–478 (2003)

E. Antonazzo et al.466

where T is the total time available. The Lagrangianfunction and first order conditions take the form

c ¼ UðCt; Lt; XtÞ � l ðCt � Vt �WtðT � LtÞ½ �

UCðCt; Lt; XtÞ ¼ l;

ULðCt; Lt; XtÞ5lWt orUL

UC

5Wt

If the equality holds, we have an interior solutionwhere Lt5T and the individual participates in thelabour force. On the contrary, if the inequalityholds strictly than the individual is not working(corner solution). The wage WRt such thatULðCt; Lt; XtÞ ¼ lWRt is the reservation wage,below which the individual will not work.

Placing labour supply decisions in a family orhousehold context allows the exploration of theeffects of tax and benefits policies. We outline herethe standard ‘unitary’ family labour supply model,which treats the family of two working-age

individuals as a single decision-making unit.Utility to be maximised may be written

UtðCt;L1t;L2t;XtÞ

where L1t and L2t are the leisure of each familymember and children and other dependants areincluded in the vector of household attributes, Xt .Full income is now given by

Mt ¼ Vt þW1tT þW2tT

and reservation wages can be computed for eachfamily as above. Demand for leisure, and thereforehours of work, now take the form

L1t ¼L1ðW1t;W2t;Mt;XtÞ4T

L2t ¼L2ðW1t;W2t;Mt;XtÞ4T

The ‘unitary’ approach to household laboursupply model implies some restrictions which areoften considered to be unreasonable (Slutskysymmetry and income pooling). A popular

Employed nurses

NHS

Employed nurses

Independent sector/

private nursing homes

New entrants:

newly qualified,

new graduates

(occupational

choice literature)

Potential Returners:

- out of labour force (household

reasons, career breaks)

- alternative employment

- recently retired staff

Deaths

Retirement

Figure 1. Supply side nursing labour market behaviour

The Labour Market for Nursing 467


alternative framework is the ‘collective’ model thatrelaxes the income allocation rule among indivi-duals so that this allocation may reflect thebargaining positions of individuals within thefamily.

Empirical studies of labour supply

Literature review method

The review focuses on empirical studies of thelabour supply of nurses. To be included, studieshave to be econometric analyses of the laboursupply in at least one of its dimensions (participa-tion and/or hours worked) using a standard staticlabour supply model. The participation decision isdefined as the one made by the pool of qualifiedand unqualified nurses between entering thenursing labour force or staying out.

A literature search was carried out using thefollowing databases: ECONLIT (99 hits), Health-STAR (495 hits), the Social Science Citation Index(295 hits), and CINAHL (Cumulative Index ofNursing & Allied Health Literature, 288 hits).Search strategies were formulated using appro-priate combinations of controlled vocabulary,where available, and free text terms. The articleswere selected for analysis only if they satisfied theaforementioned inclusion criteria.

Methodological issues

This brief overview of empirical research reportsthe results of studies from different generations ofresearch. The need to develop more elaboratemodels and empirical techniques fostered substan-tial development of econometric methods, char-acterised by improved model specification thatreduced the biases produced by omitted variablesand adopted more adequate estimation techniques.

Three major methodological issues in laboursupply research have been identified [12]:d

Sample selection. Potential bias arises from theexclusion of non-working nurses from the samplewhen estimating labour supply functions. Thisarises because we do not observe hours of work fornon-working nurses and thus the data on hoursworked are censored. Unobservable worker char-

acteristics (tastes or preferences for work) inducethe working sample to value work more, and tooffer more hours of work than the whole popula-tion. Thus the error term may not be a mean-zerorandom variable in the resulting sub-sample ofworkers (but instead tends to be positive) eventhough it is a mean-zero random variable in thepopulation as a whole. Applying OLS limiting thesample to workers implies that coefficients will bebiased downward and inconsistent; the reservationwage will be lower and the regression line will beflatter than the true one.

Sample selection issues began to be addressedusing the Heckman procedure [13]. The condi-tional expectation of hours worked for workerscan be written as

EðH jHf0Þ ¼ Xibþ sli

where is Xi a vector of independent variables,including the wage and other socio-economiccharacteristics, and the second term is non-zero.Exclusion of the latter term can be seen as anomitted variable problem in the linear hoursworked regression equation. Heckman suggeststo add li (inverse Mills Ratio) as a regressor to thehours equation, before carrying out OLS estima-tion on the working sample of individuals.

Measurement error. This results from the unavail-ability of directly measurable wage rates. There aredifferent aspects to this problem. Often the ratiobetween annual earnings and annual hours ofwork is used to compute the current wage. Hence,any errors in the measurement of labour supplywill be duplicated in the constructed measure ofthe wage, which will give rise to a spuriouscorrelation. The technique of instrumental vari-ables has often been used to overcome errors-in-variables problems. Second, in the presence ofprogressive taxation the important wage rate is themarginal wage, which diverges from the averagewage, while the most common measures of thewage allow only the computation of averageearnings. If the individual works beyond asufficient number of hours, under a progressivetax system, the average after-tax hourly earnings islarger than the after-tax marginal wage rate [12].Estimating an hours of work equation using theaverage wage would introduce a potential negativebias on the relative coefficient.

A different kind of wage-measurement arisesbecause wages cannot be observed for people notemployed. An ‘imputed wage’ must be estimated,



as a function of several personal characteristics(age, work experience, education, etc.). Theregression method must however correct forsample selection bias, which arises if the sampleis restricted to workers.

Functional form of the estimation model. Whilegenerated from the same preference function, thehours of work equation and the participationequation are very different. It is not possible to usethe same model to analyse the two differentdimensions of labour supply. To estimate hoursworked, a regression method to deal with censoreddistributions is required (sample selection cor-rected regression). For participation, logit andprobit models are preferred because they areefficient and robust against non-normality andheteroskedasticity, and they constrain the depen-dent variable to lie in the 0–1 range.

North American studies

General findings. Empirical models of nurses’labour supply have been estimated using regres-sion models in which the dependent variablerepresents a measure of labour supply (eitherhours or participation rates). The followingindependent variables have been used: own wage,husband’s wage (for married nurses), non-labourincome, family life cycle variables (age of thenurse, total number of children, number ofchildren in different age ranges, number of adultsliving in the household in different age bands),family attitude toward the wife working, educa-tion, area of residence and other demographicvariables.

Relatively little empirical research has beenconducted and the findings of the studies, whentaken together, present a rather unclear picture ofthe relationship of the aforementioned variablesand nurses labour force participation. The resultsvary according to the methods of estimation, thenature of the sample, model specification andselectivity issues arising out of measurement errorand omitted variable problems.

Table 1 shows lack of consensus among some ofthe most cited studies, on the sign, size andsignificance of the association between measuresof labour supply (participation rates or hoursworked) and a range of selected variables. Sixteenrelevant studies were identified and elasticityestimates have been summarised where available.

A number of results emerge. First, the impact ofown wage on hours worked is ambiguous. A large,positive and significant association was found insome studies [15–19], an insignificant or a weakone was found in others [20–23], and a negativeone in some others [22–24]. Own wage wasgenerally not found to be significantly related tolabour force participation in the few studies whichanalysed this relationship [20–22]. This diversity inthe estimates of labour supply responses for nursesmirrors the diversity of the general labour supplyresults.

Second, most studies found that the wage of thespouse and household non-labour income werefound to be negatively associated with labour forceparticipation and hours worked, although theestimated size of the elasticities varied widely.The presence of very young children, under the ageof five, was generally a constraint on labour forceparticipation [19–22] and hours worked [15–19,21–24]. However, one study presented evidence ofa non-significant relationship between participa-tion and presence of young children [25] while asecond suggested this variable was not significantlyrelated to annual weeks of work [20]. The effect ofthe presence of older children on labour supplywas far from clear [16,21,24]. Finally, the age andthe education of the participant do not appear tohave been significantly linked to labour supplydecisions.

First and second generation research. First genera-tion studies utilised ad hoc models and simplemethods, such as OLS or 2SLS, 3SLS. Thefunctional forms were not derived explicitly fromutility or indirect utility function. The models didnot address issues such as corner solutionse andproblems related to the error term (sampleselection bias). The samples were usually aggregate(county- or state-level averages) and old data(today’s participation rates are much higher) andcomprise just working female nurses. Estimates ofintra-family or cross-substitution elasticities, theincome-compensated effects of a unit change inthe wage of the spouse on the labour supply of thenurse, were very rare in the first generation studies.The common simplifying assumption was thatcross-substitution effects were zero. The elasticitiesranged from 0.54 to 0.89 [14], but they are notreliable because of all the problems involved in themodel estimation. However, there seems to be lessvariability in the elasticities estimates for nurses



Table 1. Findings of North American studies on married nurses’ labour supplya,b

Independentvariables

Dependent variables

Labour force participation Hours worked

Own wage Not significant [20]

Not significant [21]Not significant, except in 1960and 1984, elasticities +1.28and +1.56, respectively [22]+, elasticities +0.90 in1984, +1.21 in 1988 [19]Not significant [23]

+ but weak effect [20]+, elasticity +2.8 [15]Elasticity varied from+0.23 to �0.94, depending on agecohorts [24]+, elasticity +1.12 [16]Not significant [21]Not significant, except for 1988, whenit is – with elasticity �0.39 [22]+, elasticity for female nurses +1.35 in 1984,+1.45 in 1988. For male nurses +0.85 in 1984,+0.26 in 1988 [17]+ [18]+, insignificant for part timers [19]Not significant [23]

Husband’swage

�, especially transitory earnings ,elasticity �0.28 [20]� [21]�, elasticities varying from�1.18 to �0.99, depending onsample year and data source [22]

�, elasticity [-0.08,-0.12] [20]�, elasticity �1.38 (weekly hours) and�1.54 (annual hours) [15]�, elasticity ranged from �0.5 to �1.7 [24]Not significant [16]� [21]Not significant [22]�, elasticity for females �0.17 in 1984 and 1988,elasticity for males �0.07 in 1984 and 1988 [17]

Householdnon-labourincome

�, elasticities varying from �0.014 to�0.02, depending on sample yearand data source [22]

�, elasticity �0.03 (weekly hours) and –0.02(annual hours) [15]�, elasticity ranged from –0.03 to �0.16 [24]�, elasticity of �0.02 [16]� for 1977, 1984 and 1988, elasticities�0.0007, �0.0007, �0.005 respectively. Forother years, not significant [22]� [18]� [19]Not significant for full timers, � for parttimers [23]

Children �, for preschool age children;Not significant for numberof children [20]Not significant [25]� for children aged between 2and 5: not significant for childrenaged over 11 [21]�, if all children aged less than 6,+ if all children aged more than 6 [22]� for children aged less than 6,+ for children aged more than 6 [19]Not significant [23]

Not significantly related to annual weeks, butpossible seasonal variation [20]�, for children aged under 5, + for older children [15]� for children aged under 8, not significant for olderchildren [24]� for children aged under 5, not significant for olderchildren [16]� for children aged between 2 and 5, not significant forchildren aged over 11 [21]� for children of all ages [22]�, for all children aged under 6, + for all children olderthan 6 [17]� [18]� [19]�, for children aged under six, + for children aged 6–18for part timers [23]



than for general female labour supply, which arefound to vary from �0.10 to +1.60 [11].

Bognanno et al. [20] was the first study toinclude non-working nurses, and to use micro-leveldata with several explanatory variables, capturingthe effects of inter-household differences. Theyfound that participation decisions were not sig-nificantly related to own wage rate, but insteadwere highly dependent on husband’s earnings.However, these results are biased because thelinear probability model used to estimate theprobability of labour force participation is inade-quate since it does not constraint the dependentvariable to lie in the range 0–1. Furthermore, theOLS estimation of hours of work suffers fromsample selection bias.

In the second generation of studies considerableprogress was made on the functional form of thelabour supply model and the estimation techni-ques. Supply equations, derived explicitly fromutility function, were more complete, thus redu-cing the biases produced by omitted variables, andthe data used were mostly national. Twin linearprobability models [15] and Tobit models[15,16,24] were employed. The twin linear prob-ability model estimates first participation with alinear probability model using the whole sample.

Secondly, using the subsample of participants, theamount of time worked is estimated with a linearregression model. Twin linear probability model,like OLS, did not deal with censored distribution,although it allowed comparison with past studies,whereas the Tobit estimation did. Sample selectionissues began to be addressed using Heckman’sprocedure [13].

Sloan and Richupan [15] provide the largestwage elasticity to date. To avoid possible measure-ment errors, wage generating equations wereestimated. The nurse wage elasticity for allmarried nurses, calculated using Tobit method,turned out to be 2.8. The authors attribute thisdifference in results to the better estimationtechnique (Tobit) and to the larger sample under-lying the estimates.

Additional issues were also investigated bysecond generation researchers. Wage responsive-ness by age and race cohorts were computed byLink and Settle [24]. In this study almost all wageelasticities of nurses were either insignificant ornegative. Bahrami [26] included in the hours ofwork equation some subjective variables regardingwork environment, such as relative wage, lack ofparticipation in decisions, provisions of day careand occupational ladders.

Table 1. (continued)

Independentvariables

Dependent variables

Labour force participation Hours worked

Age Small mixed effects: + in 1970,� in 1980, + in 1988; not significantin other years [22]� [19]� in 1981, + in 1988 [23]

Not significant [15]Not significant [16]Not significant. Small positive effectin 1988 [22]� [17]Not significant [23]

Education + but very weak effect [21]� in 1980 and 1984, not significantin other years [22]� [19]� in 1981, insignificant in 1988 [23]

Not significant [24]Not significant [16]+ but only very weakly related [21]Generally not significant [22]� [19]Not significant [23]

Sex roleattitude

+ and strongly related [21] + and strongly related [21]

Notes: a The plus and minus signs in the cells indicate the direction of the statistically significant association among the variables, asfound in the studies.bThe vast majority of the studies focuses on married nurses’ labour supply, however, Sloan and Richupan [15], Link and Settle [16],Link [22] analyse also the labour supply response of single nurses, to allow for structural differences in the results. Brewer [17]analyses the labour supply of females in general versus males.



Other studies highlighted the fixed costs oflabour market entry, such as transportation costs,child care arrangements, and the expenses neces-sarily incurred by performance of the job whenexamining the labour supply behaviour of marriedwomen [27,28]. This possibility introduces discon-tinuities in the labour supply function, sincewomen start working at some minimum positivenumber of hours, the reservation hours, in order tocover possible aforementioned fixed costs. Modelswhich ignore the discontinuity may overestimatesubstantially the parameters that underlie marriedwomen’s labour supply behaviour. In spite of theimportance of the discontinuity issue, very fewstudies have incorporated it when focussing onnurses’ behaviour [29].

Recent empirical evidence: the late 1980s and1990s. Most of the recent North American studiesutilised data from the National Sample Survey ofRegistered Nurses (NSSRN). This is a largequadrennial study designed to allow state-levelanalysis. Issues such as part-time versus full-timelabour supply and the behaviour of male nurseshave been explored and advanced econometrictechniques have been used.

Brewer [17] used the 1984 and 1988 NSSRN toexamine the labour supply response of RegisteredNurses under very different economic environ-ments. Annual hours were analysed with OLS, andparticipation with logistic regression, which con-sidered non-working, part-time and full-timestatus. Instrumental wages for working and non-working nurses were used to prevent bias in theOLS regression. Among the results she found outthat most female nurses were more responsive tothe wage in 1988 (1.45 elasticity), under shortageconditions, than in 1984 (1.35 elasticity), undermarket equilibrium.

Mallikamas [19] also used the 1984 and 1988NSSRN to estimate a nested logit where nurseswere viewed as deciding whether to work in nurses,whether to work full time or part-time, whether towork in hospital or non-hospital, how many hoursto work and what specialty if working in hospital.Wage rate and autonomy of nursing jobs werefound to be important factors determining parti-cipation, although insignificant for part timershours of work and choice of specialty. Wageelasticity was higher in 1988 (1.21) than in 1984(0.90), as found also from Brewer [17].

Link [22] conducted the most thorough studyexamining selection bias in nursing labour supply.

Labour force participation and hours equationswere estimated using Heckman’s procedure, forRegistered Nurses over the period 1960–1988. Thepresence of selection bias was tested and found notto be significant in years other than 1977.f Marriedworking nurses own wage elasticities were foundto be insignificant except for 1988, and rangingfrom –0.39 to 0.19, nowhere near 1. These findingsprovide strong evidence that wage increases areunlikely to provide a low cost way of increasingthe hours worked by the existing stock of workingnurses. Moreover, a wage increase would not affectconsiderably the participation rate either, giventhat the participation rate for nurses was estimatedto be greater than 87%, higher than the one forfemales in general and prime-age males.

Lehrer et al. [18] found, using 1988 data, thatthe provision of employer-sponsored child carehad a positive and significant impact on hoursworked per year by Registered nurses with youngchildren. Furthermore, the authors found evidenceof an increase in reported attachment to theemployer due to child care facilities roughlyequivalent to that associated with a wage raise of$6/h. An interesting study that used stepwiseregression to estimate hours of work and stepwisediscriminant analyses to estimate three categoryemployment status (full-time, part-time, and notworking) was carried out by Laing and Rade-maker [21]. The analysis tried to rank theimportance of factors influencing married nurseslabour force participation. A measure of thedivision of labour within the family, labelled ‘sexrole attitude’, was found to be the strongestpredictors. Of the economic variables, only thespouse’s salary was an important predictor, whilethe nurse’s own wage did not appear to be relevantin any of the models.

Another study worth of mention is the one byAult and Rutman [23], which stresses the sensitiv-ity of results estimation to different measures oflabour supply (annual hours of work, hoursworked per year, and weeks worked per year).Using a probit-2SLS model correcting for sampleheterogeneity, the decision on hours per week andweeks per year are considered to be simultaneous.Wage rates become insignificant, while otherincome and presence of children affect the decisionto work full-time or part-time, more than thedecision to work or not to work.

To summarise, the main American empiricalstudies reveal considerable differences over sign,size and significance of the relationship between



nurse labour force participation and the variablesusually included in the labour supply models.Estimates of the determinants of nurses laboursupply are sensitive to the econometric andstatistical assumptions.g More recent studies havealso cast some doubts over the role of wages inlabour supply.

Review of British empirical studies

Very little empirical research has been conductedin the UK on the labour market behaviour ofnurses. The North American research reviewed inthe previous section, although somewhat fragmen-tary and as yet inconclusive, provides moreexamples of relevant work than are available fromthe United Kingdom. The lack of detailed studiesmeans it is not possible to classify the research intoa framework which distinguishes between first,second and recent empirical evidence as above.

Only one study could be identified whichundertook econometric empirical research basedon the classic model of labour supply andspecifically focused on British nurses [29]. Thestudy investigated a wide range of issues, such asthe presence of discontinuities in the labour supplycurve and the impact of the costs associated withmarried women participators. The model em-ployed corrected for mis-specification and sampleselection bias; however, the data are now datedand the sample size was small (312).

The base model was a neoclassical one, wherethe decision to work depends upon the comparisonbetween the reservation wage and the marketwage. A selection bias-corrected probit model forestimating the probability of participation for anurse was estimated. A selection bias-correctedhours of work regression is also reported, depend-ing upon the same variables as the participationprobit model. Data on British nurses are drawnfrom the Women and Employment survey in 1980,with a sample size of 312 cases, after correcting formiscoding or missing values.h

The elasticity of the probability of participationwith respect to the wage is 1.4, while the elasticitywith respect to non-labour income is �0.38. Theown wage elasticity is small at 0.15. Moreover,some discontinuities in the supply function werefound though they were not sizeable. The reserva-tion hours were estimated to be 15.8 per week. Theelasticity of participation with respect to changesin working costs was –0.67 for all the nurses.

Phillips concludes that wages are likely to be aneffective way for managing the supply of nurses, atleast where participation rates are not particularlyhigh and ‘allow room for response’. Policies toreduce working costs (creche and other child carefacilities) may also produce small gains in partici-pation.

In an earlier study, Phillips [30] examined thedeterminants of the decision to quit, for qualifiedand unqualified nurses. An estimation of thehazard function and a conditional probabilitymodel are used, based on two cohorts of workersat a major hospital in the Oxford Region. Forqualified nurses, the elasticity of median durationwith respect to the nursing wage is 1.29, while forunqualified nurses the same elasticity is 2.77, andquits rise directly with increases in the number ofvacancies in both nursing and non-nursing em-ployment.

Another study focussing on the supply of labourof Midwifery staff to the NHS estimates a survivorfunction, the proportion of a cohort of midwivesstill practicing after a certain number of years fromcommencement, as a function of real basic pay[31]. Pay variables were highly significant expla-natory variables and the pay elasticities did notvary much as the functional forms were varied.They rose to a peak at six years after commence-ment, with the estimated elasticity lying between2.410 and 2.709, before falling away.

Buchan and O’May [10] argue that nursing doesnot differ from most other occupational labourmarkets, in the sense that there is no commonlyaccepted and proven model of the impact of payon labour market behaviour. The potential for amonopsony effect exists due to the limitedgeographical mobility of many nurses. Moreover,the need to study a balance between career anddomestic commitments, contribute to complicatethe picture.

The links between labour turnover and anumber of local labour market variables havebeen extensively researched by Gray and Phillips[32] by means of regression analysis. Following thestudy undertaken by Gray et al. [33], data onleavers and staff-in-post for 19 staff groups from103 English Regional Health Authorities werecollected (31 1000 employees were covered). Twolocal labour market variables were significantlyrelated to turnover across all staff groups: the sizeof the private health care sector and the relativepay with respect to the local average for compar-able workers.



However, very limited research has been con-ducted on the efficacy of pay policies. In theattempt to fill the gap Gray, Phillips and Normand[34] investigate across the board pay increases, andclaim that they are not generally a cost-effectiveway of reducing turnover rates, since the cost:sav-ing ratio for a typical trust is found to be between166:1 and 19:1. On the contrary, if pay increasesare targeted and short term productivity losses arelarge, the cost:saving ratio becomes much morefavorable.

Finally the relationship between age, length ofservice and turnover rates among different staffgroups, including nurses, was examined by Grayand Phillips [35]. The aggregate turnover rate forall staff covered in the study was 13.6%. Turnoverrates declined with age, and then rose close toretirement. They also tended to be high in the firstyears of service, before declining, suggesting thatthe information about the nature of the job isaccumulated slowly.

Among other studies focused on British nurses,although not satisfying the inclusion criteria of thisliterature review, it is worth mentioning the longseries of surveys commissioned by the RoyalCollege of Nursing (RCN) and conducted bythe Institute for Employment Studies [36,37].Although these studies contribute to a betterunderstanding of the dynamics of the nursinglabour market and the motivation of individualnursing, ‘none has taken what could be termeda ‘rounded’ assessment of supply and demandissues’ [10].

Nursing job satisfaction and laboursupply

An indirect way of estimating the labour supply isthrough analysis of job satisfaction. The theore-tical model presented in section 2 links individual’slabour supply to pecuniary and non-pecuniary jobcharacteristics. However, the role of the non-pecuniary job-characteristics (the vector Z, includ-ing variables such as promotion and trainingopportunities, flexibility of working hours, jobsecurity, control over shift/hours, etc.) has beenneglected in the traditional empirical literature,which instead has focussed on the role of wages.

The relative role of pecuniary and non–pecuni-ary job characteristics has been investigated byeconomists through the econometric analysis of

job satisfaction.i This research has also attemptedto examine the relationship between job satisfac-tion and indirect measures of labour supply(turnover, absenteeism, quitting intentions).

Economic studies of job satisfaction can bedivided into those which consider the workforce asa whole [38,39], those which analyse specificprofessional groups [40], those which analyse theimpact of personal characteristics, such as age,gender, marital status [41], and those whichanalyse the impact of work-related characteristics,such as union membership [42] and self-employ-ment [43].j

The economic literature examining specificallythe relationship between job satisfaction andquitting behaviour is scant, the main reason beingthe lack of large sample longitudinal data suitableto identify job satisfaction at wave t-1 and jobturnover at wave t. Freeman [44], by using paneldata from the US National Longitudinal Surveyand the Michigan Panel Survey of IncomeDynamics, finds that job satisfaction is a signifi-cant determinant of quitting and it is quantita-tively more important than wages. Moreover,satisfaction correlates negatively with absenteeism[45] and positively with worker productivity.

In the nursing field, there has been very littlework by economists. Mottaz Clifford [46] applies amultivariate regression on eight different occupa-tional groups including nurses, and demonstratesthat intrinsic task rewards (task autonomy, tasksignificance, task involvement) have a greatereffect on work satisfaction than extrinsic rewards(salary, fringe benefits, promotional opportunity).

Among the British studies, Shields and Ward[47] have analysed job satisfaction. Based on anextension of previous work [Shields M, Jones J.The determination of job satisfaction for Britishnurses and effects on future employment expecta-tions. Unpublished work, 1998], the paper inves-tigates the determinants of job satisfaction fornurses, and establishes the importance of jobsatisfaction in determining intentions to quit theNHS. Drawing data from a large (9625 nurses)and unique national survey of NHS nursing staffcollected in 1994, an ordered probit model isestimated, with job dissatisfaction being signifi-cantly greater for young, male, ethnic minorityand highly educated NHS nurses. Moreoverrelative low pay and working environment vari-ables reduce job satisfaction. Those nurses em-phasising the more pecuniary aspects of the jobreport lower levels of job satisfaction, relative to



those who stress the non-pecuniary aspects of thejob.

A binary probit model is then estimated tocalculate the probability of nurses intending toleave the NHS in the three years followinginterview. Nurses who report overall dissatisfac-tion with their jobs have a 65% higher probabilityof intending to quit than those reporting to besatisfied. Principal component analysis shows thatdemoralisation linked to poor career advancementand training opportunities has a stronger impacton intention to quit than workload or pay.

Other studies, mainly in the non-economicsliterature and mainly in the US, have identifiedthe correlates of nurse work satisfaction, and theirrelationship with decisional variables (intention toleave) and behavioural components (turnover).k

Conclusions and agenda for furtherresearch

This paper has reviewed the economics literatureon nursing labour supply. The North Americanresearch reviewed could be classified in firstgeneration, second generation, and most recentstudies, each characterised by methodologicaladvancement in nursing labour supply modelling.However, the disagreement in the findings isstriking, since they appear to be particularlysensitive to the econometric assumptions.

British empirical research on nursing laboursupply has been scarce and dominated by one ortwo authors. Although a fairly considerableliterature is now dealing with the determinants ofnursing turnover and the decision to quit[30,32,35], we were able to identify just one studystrictly meeting the inclusion criteria of thisliterature review [29]. The lack of the literaturecontrasts with the urgent need for research on themajor drivers in nursing labour market behaviour,given that several factors suggest that the pool ofqualified nurses for employment will shrink in thenear future. Among the datasets available in GreatBritian to carry out such research, we are aware ofthe Labour Force Survey, The British HouseholdPanel Survey, The New Earnings Survey.

The role of non-pecuniary job charactersitics,and their relative importance with respect topecuniary job characteristics, is also importantand needs to be integrated with the more tradi-

tional labour supply models, as highlighted by theemerging literature examining the determinants ofjob satisfaction.

Several research questions, crucial to assess therelative efficiency of demand-side and supply sidepolicy approaches to manpower shortages, are yetto be answered.

* Whether nurses have a backward bendingsupply curve, and which unexamined character-istics are important in predicting labour marketbehaviour. The extent of possible bias inparameter estimates depends crucially on thepresence of omitted variables. In particularnon-wage ways of affecting the supply of labourmight be relevant. Although economists havebegun to examine job satisfaction as a depen-dent variable and to link it to intentions toleave, only one UK study could be identified[47].

* Labour preferences of different subgroups(effect of age, gender, ethnicity), as the compo-sition of the workforce is changing. Going backto the framework of Figure 1, attracting backpotential returners (with a refresher program orflexible retirement schemes, for example) couldbe easier and quicker than increasing thenumber of new entrants to the professions.

* The effects of taxes, benefits, permanent versustransitory income, labour market entry costsand discontinuities in the supply function. Inthe nursing context it is interesting to estimatethe response of labour force participation to areduction in working costs. Cogan [28] esti-mates that an additional child of preschool ageincreases the annual cost of work by over $300.There is empirical evidence that a reduction incosts of employment would increase participa-tion and hours worked [28,29,18]. In thenursing context in particular Phillips [29]suggests that a subsidy which led to 10% fallin these costs would increase the participationof British nurses by 6.7% and by married nursesby 6.4%. Lehrer et al. [18] find that employersponsored child care provision would increasethe hours worked per year of Registered Nursesby 9%.

* Short run labour supply models do not in-clude additions to the workforce through new



graduates as well as deaths and retirement(long-run models) and the interaction with thedemand. Determinants of occupational choiceneed to be investigated. Understanding the linkbetween the design of the pension scheme andretirement decisions of nurses requires ananalysis of the specific structure of the retire-ment programmes and the way in which theyinteract with disability laws and rules forearnings after retirement.

* Furthermore, several alternative approaches inthe modelling of labour supply have beenrecently investigated.l Going beyond the stan-dard static within-period labour supply frame-work, multi-period models in which laboursupply is part of a lifetime decision-makingprocess appear more realistic (structural dy-namic models). Further complexity can beintroduced if agents are supposed to optimiseexpected lifetime utility, in a context of un-certainty, or to optimize a joint utility functionwith income pooling restrictions, within acontext of family labour supply framework.All these models could well be extended tonursing labour supply behaviour.

There is still room for improved statisticalmethodology, more advanced modelling, new datasources, and resolution of the issue of selectionbias and errors in measurements. Only if thesedevelopments occur can important policy ques-tions be answered.

Acknowledgements

The authors would like to thank John Cairns, AlanMaynard and anonymous referees for helpful commentson earlier drafts of this paper, and Moira Napper forinvaluable assistance with the literature search. HERUis supported by the Chief Scientist Office of the ScottishExecutive Health Department (SEHD). The views in thispaper are that of the authors and not SEHD.

Notes

a. The nursing salary component in Scotland ac-counted for 51.7% of the total salary bill forhospital services in 1999 (Scottish Health Statistics,1999).

b. The reduction in the number of student nurses issaid to be brought about also by the introduction ofan ‘employer led’ system in which trusts take part indetermining intakes to training. The intakes to pre-registration education have decreased by 33% from1987/1988 to 1995/1996 [9].

c. This also assumes that nurses can change jobs ifthey are unable to reduce hours of work in theircurrent job.

d. Brewer [14] has extended the classification of laboursupply research undertaken by Killingsworth [12],and applied it to research into nursing laboursupply.

e. Corner solutions to maximisation problems in alabour supply model arise when the desired hours ofwork are negative, or in other words, where thereservation wage is higher than the market wage. Inthis case, a complete model of labour supply shouldset the actual hours worked equal to zero, and acorner solution arises.

f. The issue of whether selection bias is important forempirical nursing labour studies is still controver-sial.

g. On this issue, see Mroz [48].h. Other studies have used the Women and Employ-

ment Survey to estimate the UK labour supplyequations for females in general [49,50].

i. More recently, the role of pecuniary and non-pecuniary job characteristics has been investigatedusing discrete choice experiments [Scott A. ElcitingGPs’ preferences for pecuniary and non-pecuniaryjob characteristics. J Health Econ 2000; Forth-coming.] [51].

j. For a general overview of the results of thesestudies, see Shields and Ward [47].

k. Two published meta-analysis provide a useful over-view of the current state of the knowledge [52,53].

l. For a comprehensive review of the most recentalternative approaches to labour supply see Ashen-felter and Card (Chapter 27, vol. 3A) [11].

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The labour market for nursing: a review of the labour supply literature

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