Hospital Consolidation and Monopsony Power in the Labor Market for Nurses

The U.S. has faced a persistent nursing shortage since World War II. Monopsony power is often considered a contributing factor to this chronic shortage. In a market with few competitors and a supply of workers that experiences frictions to changing jobs, hospitals can increase profits by suppressing employment and wages below the competitive level. A wave of hospital consolidation in the U.S. over the last 30 years has only further reduced competition among nurses’ employers and expanded this monopsony power. This article details the monopsonistic effects of hospital consolidations on the nurse labor market as well as the implications for antitrust policy.

By Christina DePasquale¹

I. INTRODUCTION

Over the past 75 years, the United States has faced a persistent shortage in the market for nurses. For example, in 2007, the American Hospital Association reported a vacancy rate of 8.1 percent, or a shortage of 116,000 nurses.² Such shortages would be unexpected in the setting of a competitive market, where the forces of supply and demand should work to eliminate them. Their persistence suggests that pervasive market frictions prevent this labor market from clearing. This article explores a leading explanation for their persistence: the particular role that monopsony power plays in the apparent failure of the market to reach equilibrium.

Monopsony power arises when there are few competitors on the demand side of a market.³ With little to no competition, a monopsonis