Glass Price Ceiling?

For a good 20 years (or so it seems) the press has been telling us there is a nursing shortage. I’m still not clear on what a “shortage” means in this context. Sometimes when people use the word “shortage”, they just mean that there is not as much of something as one would have hoped. For example, if someone says there is an “oil shortage” in the US today, they really mean that they wish there were more oil, so we wouldn’t have to pay so much for it. If this meaning applies in the case of nurses, then the rest of this post is irrelevant.

When economists use the term “shortage”, however, they have a specific meaning in mind: the quantity of something demanded exceeds the quantity supplied at the current price (or, in the case of nurses, one might say, at the current wage or salary). In a well-functioning market without artificial constraints, shortages aren’t supposed to happen, or at least they aren’t supposed to last very long (certainly not 20 years). If the quantity demanded exceeds the quantity supplied, suppliers (nurses, for example) will find it in their interest to charge a higher price (in the case of nurses, to hold out for more pay). When the price rises, usually more people will find it in their interest to become suppliers (e.g. nurses), and fewer people will demand the product (e.g. nursing services) at the higher price. (At least one or the other of these things should happen.) Eventually (almost immediately in a well-functioning auction market, maybe a matter of months or even years in a market with sluggish price-setting, but surely never more than a decade!) the quantity supplied will rise, and/or the quantity demanded will fall to the point where they become equal, and there is no more shortage.

Why hasn’t this happened with nurses? Some people point to a bottleneck in nursing schools. Obviously existing nurses have only a certain amount of labor they can (safely) supply, and they may already be “tapped out”; others can’t become nurses without going to nursing school; and nursing schools have a limited number of slots for students. The problem with this argument is it only pushes the shortage into a different market. If there is a shortage of nursing school slots, the same “shortage” arguments should apply. If the nursing shortage pushes up the pay for nurses, then nursing students can afford to borrow more money, and nursing schools can charge more, and it will be profitable for them to expand and for more people to become nursing instructors. Again, it might take some time but – 20 years???

I don’t know the answer, but I have one theory. Feminists have long noted a tendency for typically female occupations to pay less than typically male occupations. Often, economists have good explanations for occupational differentials, but there is troubling evidence that even within occupations, and even within particular jobs, and even when controlling for things like education, years of service, and performance ratings, women are paid less than comparable men. To me, it suggests that there is a sociological component to wage determination. Though in many cases competition and other market forces may squeeze discrimination out of the market, I would suggest that nursing may be one field where this process hasn’t worked. Because nursing is considered a typically female occupation, the idea of paying nurses six figure salaries may be difficult for many employers to swallow. If so, that might explain the persistent shortage.