Cut to the Bone? Hospital Takeovers and Nurse Employment Contracts

This paper uses data from the 1990s to examine changes in the wages, employment, and effort 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 firm market power to be associated with declines in wages. However, a basic contracting model predicts effects on effort 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 effort. We show that our results are also consistent with an extended version of the monopsony model that considers effort, and allows for revenue shifts following a takeover. Finally, we find that these changes are similar in the largest for-pro t and non-profit chains, suggesting that market forces are more important than institutional form.