Nursing labor is the single largest item in a hospital's budget. Federal, state, and local policies affect nursing labor markets by funding nurse education and by changing the financial incentives facing hospitals. I examine three aspects of nursing labor markets to shed light on what determines the demand for and wages of nurses, and consider the policy implications of my analysis.

Chapter one assesses the impact on nursing employment of Medicare's Prospective Payment System and the development of selective contracting organizations. Policymakers wanted hospitals to reduce costs; however, nursing labor expenditures increased in the 1980s. To explain this, I estimate labor use equations for registered nurses, licensed vocational nurses, and aides in California from 1976 to 1989. In panel estimation controlling for wages, output, and technology, I find that nursing costs increased due to growth in R.N. use. The policies caused drops in L.V.N. and aide employment. Changes in the competitive climate of the hospital industry appear to have had a greater effect than reimbursement levels of the Prospective Payment System.

In my second chapter, I explore the relationship between three types of R.N. education--the baccalaureate degree, the associate degree, and the diploma--and wages. Using National Sample Surveys of Registered Nurses from 1977, 1980, 1984, 1988, and 1992, I estimate wage equations with a generalized Tobit model. After finding that R.N.s do not gain (financially) from obtaining the B.S.N., I ask why a prospective nurse would choose this degree. I find that non-wage career objectives and the timing of education decisions are likely to affect education choice.

Finally, I examine why large hospitals pay nurses more than small facilities. In American Hospital Association's 1990 Nursing Personnel Survey, observable variations in worker quality and workplace characteristics do not explain the size-wage effect, nor do differences in market power and ownership. Efficiency wage models are not supported. Hospitals which face a greater risk of labor organization pay higher wages than other facilities; however, it is unlikely that union avoidance explains the size premium. These findings are puzzling but are consistent with the conclusions of studies of other industries.