The shortage of registered nurses has been a recurrent feature of the US health care industry and future shortages are expected due to demographic aging. It is critical to better understand the factors underlying both demand and supply. This study investigates the determinants of the labor supply of registered nurses which is the outcome of three decisions: (1) work in the labor market, (2) work as a nurse rather than in another occupation, and (3) how many hours of labor to supply. These decisions must be considered jointly, which previous literature has failed to do.

The effects of individual productivity (human capital) characteristics such as type of nursing degree, additional degree beyond first nursing degree, experience in nursing, health status, and wage; demographic characteristics such as age, sex, marital status, presence and age of children, husband's income, and non-labor income; and community level variables such as whether residence is urban or rural, and unemployment rate in county of residence have been used to explain both hours worked and labor force participation.

Previous studies have made policy recommendations to affect nurse labor supply based on biased estimates of parameters and, perhaps, misspecified models. Current econometric methodology that corrects for this self-selection was used to provide unbiased parameter estimates to inform policy.

The single greatest determinant of the choice to remain in the nurse labor force is wages. As nurses' wages increase, the probability of remaining in nursing increases dramatically. The presence of children decreases the probability of working as a nurse; however, the presence of preschool children significantly increases the probability of working as a nurse after accounting for presence of children. This effect can be attributed to the ability of women with preschool children to maintain their attachment to the labor force without working full time. The numerous part time jobs available in nursing make this possible. Those individuals with preschool children work fewer hours than others. Individuals with an associate degree are more likely to work as a nurse than those with diploma, baccalaureate, or master's degrees in nursing. Rural nurse license holders are more likely to work as nurses; this may reflect the constrained choice of jobs in rural as opposed to urban areas.

These findings suggest possible policy options. It appears that increasing wages would increase the supply of individuals available in the nurse labor market. If government monies are to be used to fund nurse education in hopes of alleviating the current shortage, it appears most efficient to fund associate (2) year programs. Provision of easily accessible, adequate daycare may increase the number of hours those individuals with preschool children work.