Through the looking glass: the labor market for registered nurses in the 21st century.

From the 1950s through the early 1990s, nurses enjoyed employment security. Now supply outstrips demand and nursing student enrollments are declining. What are the forces at work and how can the rules of the marketplace be used to predict the future? nursing has, like Alice, passed through the looking glass into a world that seems to operate by different rules than in the past. Nurses have always worked in a world with a plentiful choice of jobs, and recently finally seemed to have achieved solid wage gains. Nursing has experienced numerous shortages throughout its history, sparked by demand outstripping supply. This phenomenon has existed since the fifties (Yett, 1970; Aiken & Mullinix, 1987). But our world has changed, and most nurses are bewildered by the suddenness of the change. For the first time, the cause of labor market disequilibrium has been reversed: supply seems to have seriously outstripped demand. Nursing's sense of value in health care markets, and the employment security rooted in that sense of value, is being eroded by the economic forces shaping health care today (Buerhaus, 1995). Major budget reductions nationally and locally are reducing spending for health care, especially Medicare and Medicaid. The rapid spread of managed care and price competition within the industry is reducing the use of hospital care and forcing cost cutting. This in turn is causing a serious threat to the employment of nurses. How much have the rules really changed? Understanding the economics of market forces--"the rules"--and their effect on nurses, can help us anticipate what to expect for nursing and how to formulate policy responses in the beginning of the 21st century. The evidence for changes in demand, supply, and the resulting effect on wages as well as the response of the nursing labor market are reviewed here. Some of the important policy implications for job growth, availability of information for planning, and education are also discussed. Nurses and eight million other health care workers have existed in a world of rapidly expanding resources since the inception of Medicaid and Medicare in 1965 (Pew Health Professions Commission. 1995). But the shift to the Prospective Payment System in 1984 was the beginning of a major shift in health care. Hospitals finally became serious about controlling costs. However, while inpatient days decreased by 55 million from 1984 to 1994 as hospitals learned to control lengthy and unnecessary hospitalizations (Aiken, 1995), there was a compensating increase in intensity of inpatient services and growth in outpatient ambulator care and home care (Reinhardt, 1996). Total costs continued to escalate. In 1960, only 5.3 percent of the nation's productive effort was spent on health care (Bureau of the Census, 1995), whereas by 1994. 13.7 percent of the gross domestic product was spent on health care. This is a large increase, but the growth in 1994 was the slowest in a decade. Costs had been predicted to be 18 percent, based on previous forecasts (Levis, Lazenby & Sivarajan, 1996). One major factor driving the expansion of health care has been the expansion and accessibility of technology. Biomedical technology costs were passed along to consumers in the form of higher insurance premiums, taxes, and more costly goods and services (Aiken & Salmon, 1994). The fee-for-service reimbursement structure did not restrain incentives to provide more services. Prospective Payment by Medicare was a major effort to control costs. However, an increase in more severely ill patients (Goldfarb & Coffey, 1992) was accompanied by growth of specialized intensive care beds. An estimated increase of 20 percent in real case-mix changes occurred from 1981 to 1992 (Aiken & Salmon, 1994). More nurses were used in hospitals to take care of patients who were more intensively treated (Spetz, 1996; Buerhaus & Staiger, 1996). A continuously increasing demand for registered nurses, especially in hospitals, was the result, and this demand precipitated the nursing shortage of 1986-1992. …