Vertical Supply, Vertical Demand?
By Arnold Kling
Michael Mandel points to a blog post that claims we will face a severe nursing shortage. As usual, there is a government study supporting such a claim.
In Learning Economics, I derided the notion of a labor shortage (in this case, the predicted shortage was for technical workers) as showing economic ignorance. Markets clear, I argued, and the wage rate is the variable that chokes off excess demand.
In nursing, the supply curve may be somewhat unresponsive to wage rates, because of the requirement for certification and limited slots in nursing schools. On the other hand, the existing pool of certified nurses might provide an elastic labor supply. Nurses who have dropped out of the labor market at a wage of $X might reconsider at a wage of $2X.
On the demand side, the elasticity is likely to be nonzero, also. Insurance rarely pays for private-duty nurses, so that at some point as their wages rise that source of demand will fall.
For Discussion. How might hospitals substitute capital or other forms of labor for nurses?