Cut to the Bone? Hospital Takeovers and Nurse Employment Contracts

The authors examine changes in the wages, employment, and effort of nurses in California hospitals following takeovers by large chains in the 1990s. The market for nurses has been described as a classic monopsony, so that one might expect increases in firm market power to be associated with declines in wages. However, a basic contracting model predicts effects on effort rather than on wages, which is what this analysis finds: nurses experienced few declines in wages following takeovers, but did see increases in the number of patients per nurse, the measure of effort used here. The authors show that their results are also consistent with an extended version of the monopsony model that considers effort and allows for revenue shifts following a takeover. Finally, they find that these changes were similar in the largest for-profit and non-profit chains, suggesting that market forces are more important than institutional form.