Hospital Consolidation and Monopsony Power: The Effect of Mergers on the Labor Market for Nurses

Abstract

This paper explores the effect of local hospital mergers on the labor force for Registered Nurses (RNs) and Licensed Vocational Nurses (LVNs). Using data from the American Hospital Association’s (AHA) Annual Survey and the Occupational Employment Statistics (OES) Survey from 2004-2014, two analyses were conducted: (1) studies the effect of local mergers on the concentration of employment of RNs and LVNs, and (2) estimates the effect of the change in concentration of employment of RNs and LVNs on the change in their employment and wages. Using the Herfindahl-Hirschman Index (HHI) to measure employment concentration, the results indicate that local mergers are associated with an increase in labor market concentration by roughly 650 index points for RNs and 680 index points for LVNs. Estimated employment effects were negligible for both groups. A small negative wage effect was observed for RNs, and a small positive wage effect for LVNs. A 1,000 index point increase in the HHI of employment was estimated to correspond with a 0.5 percent decrease in real wages of RNs, and a 0.2 percent increase for LVNs. Though the results are not entirely conclusive based on the small size of the estimated effects, they present some evidence that mergers enable hospitals to increase their monopsony power in the labor market for RNs.