Cut to the Bone? Hospital Takeovers and Nurse Employment Contracts

Abstract

This paper uses data from the 1990s to examine changes in the wages, employment, and e¤ort of nurses in California hospitals following takeovers by large chains. The market for nurses has been described as a classic monopsony, so that one might expect increases in rm market power to be associated with declines in wages. However, a basic contracting model predicts e¤ects on e¤ort rather than on wages, which is what we see in the data nurses see few declines in wages following takeovers, but see increases in the number of patients per nurse, our measure of e¤ort. We show that our results are also consistent with an extended version of the monopsony model that considers e¤ort, and allows for revenue shifts following a takeover. Finally, we nd that these changes are similar in the largest for-pro t and non-pro t chains, suggesting that market forces are more important than institutional form.