BUSI 629 Week 6 Discussion Board Forum 6 Example

Discussion Board Forum 6: Labor Markets in Health Care

BUSI 629 Economic Analysis in Healthcare, Discussion Board Forum 6

Thread by [Student Name]

The hospital, its staffing figures and the classmates are composites; the textbook and the peer-reviewed sources cited are real.

Before 2020, our 300-bed hospital spent under $1 million a year on agency nurses. In 2022 it spent more than $14 million. At the peak, agency nurses earned around $120 an hour through their agencies, which billed us more than that, while our own experienced nurses earned about $48 plus benefits for working the same shift on the same unit. Several staff nurses quit and returned weeks later through an agency, earning far more for identical work. Our board now asks a reasonable question: how did this happen, and how do we avoid paying double again?

Lee (2015) explains that the demand for nurses is a derived demand, arising from demand for the hospital care nurses help produce, so it rises when patient volume and acuity rise. Labor supply depends on wages but also on working conditions and alternatives, and it can contract quickly when work becomes harder or riskier. During the pandemic, demand for nurses rose sharply while supply to bedside staff jobs fell, as nurses retired, cut hours or left for less stressful roles. A competitive market facing a shift like that clears at a higher wage, and the agency market, which can reprice weekly, adjusted first. Hospitals with fixed staff pay scales could not match it quickly, so the gap between staff and agency wages widened, and the shortage became partly self-reinforcing as staff left for agency work.

A recent national model reproduces this dynamic. Vardavas et al. (2026) built a behavioral economic model of hospital nurse supply and wages during the pandemic, driven by case and hospitalization data and a measure of perceived work burden, and calibrated it to observed patterns in staff and travel nurse participation and wages. Their scenarios showed a tension in federal relief funding: reimbursing hospitals without limits for travel nurse spending closed staffing gaps quickly but encouraged heavy reliance on contract labor, while strict rules discouraged legitimate applications, especially from rural and safety-net hospitals. Reliance on agency staff also carries quality risk. Bartock et al. (2026) found that at a large tertiary center, agency shifts rose from 70.9 a month, 0.9% of shifts, in 2019 to 1,206 a month, 12.7%, in 2023, while patient safety events rose from 7.1 to 9.3 a month and infections from 15.8 to 20.5. When agency nurses exceeded 10% of the workforce, there was an independent association with more patient safety indicator events, though other factors may have contributed.

Our hospital has three options for the next shortage. Matching agency pay for all staff would raise the cost of every shift, not only the marginal ones, which is the most expensive approach. Continuing to buy agency shifts as needed costs about twice the staff rate at the margin and carries the safety risk the Bartock study describes. Building an internal float pool, our own nurses paid a premium of perhaps 25% to 40% above base rates in exchange for flexibility to work across units, would fill marginal shifts at much less than agency cost while keeping nurses who know our systems. I recommended the float pool, along with targeted retention raises for units with the highest turnover. The pool would start with 30 nurses, recruited partly from staff who now pick up extra agency shifts elsewhere, and would be sized each quarter from our census forecasts. Its cost, roughly $2.4 million a year above base pay, is a fraction of what we spent on agency staff at the peak, and it would give us a buffer the next time demand surges. The cheapest nurse at the margin is usually the one who already knows where the supplies are kept.

Reply to Simone

Simone, your thread assumed that if your hospital raised staff wages close to agency rates, most nurses who had left for agency work would return. A qualitative study suggests the decision is about more than pay. Ghimire (2026) interviewed 16 registered nurses in Melbourne who worked exclusively through agencies and found that many described agency work not only as a way to earn more but as a strategic withdrawal from the conditions of permanent roles, such as bureaucratic overload and inflexible rostering. Participants built a professional identity "beyond the ward," with transactional workplace relationships and adaptability as a core skill. Lee (2015) notes that labor supply responds to nonwage job characteristics as well as wages, and this study shows how strong those characteristics can be. For your hospital, a wage increase may bring some nurses back, especially those whose agency contracts end in a slower season, but flexibility in scheduling, protected time from administrative tasks and a voice in unit decisions may matter as much. The study is small and Australian, so its findings may not transfer exactly, but its themes echo what many U.S. managers report in exit interviews. Pay was rarely the only reason nurses gave for leaving; it was often the final straw after months of short staffing, mandatory overtime and schedules published too late to plan around. If those conditions remain, a raise may slow departures without reversing them. It is also worth asking current staff what would keep them from leaving, since preventing the next departure costs less than reversing the last one. I would suggest surveying nurses who left for agencies about what would bring them back, since their answers, gathered by someone outside their old unit's chain of command, will tell you whether to spend on wages, on scheduling flexibility or on reducing the work that drove them away.

Reply to Elijah

Elijah, your thread argued that hospitals should stop treating temporary nurses as a crisis measure and plan for a steady share of them, since shortages will recur. I agree, and a recent review offers practical guidance on making that safe. Pani (2026) reviewed the evidence on temporary nurses in the British National Health Service, where bank and agency nurses have become an established part of the workforce rather than an emergency stopgap, and concluded that many problems blamed on temporary staffing stem from inconsistent leadership, inadequate induction and limited organizational support rather than from the staffing model itself. When temporary nurses are oriented and supported, they can add expertise and give pressured services real flexibility. Lee (2015) explains that firms, hospitals included, choose a mix of inputs based on relative cost and productivity, and a temporary nurse who spends the first hours of a shift learning where equipment is stored is less productive than the price suggests. The cost of such orientation is small relative to the hourly premium already being paid. Investing in standardized orientation, unit-specific checklists and pairing with an experienced staff nurse on first shifts would raise that productivity quickly and reduce the risk the Bartock et al. (2026) data point to. The review also points to a cultural issue: permanent staff sometimes resent temporary nurses who earn more for the same work, and that resentment can leave temporary nurses isolated on a unit. Leaders can reduce it by being open about why temporary staff are needed and by recognizing permanent staff who precept them. I would suggest your hospital set a target share of temporary staff, perhaps under 10% on any unit, and track safety indicators by unit and month so leaders can see whether the target holds and whether temporary staffing is linked to harm on any particular unit.

References

Bartock, J., Green, A., Nahra, R., Bordogna, A., Davoodi, A., & Rachoin, J. S. (2026). Association of travel nursing with quality outcomes in hospitalized patients. American Journal of Managed Care, 32(6), e192-e197. https://doi.org/10.37765/ajmc.2026.89960

Ghimire, A. (2026). Nursing outside the lines: Identity, policy, and the rise of gig economy nursing. Journal of Nursing Management, 2026(1), e4925153. https://doi.org/10.1155/jonm/4925153

Lee, R. H. (2015). Economics for healthcare managers (3rd ed.). Health Administration Press.

Pani, C. (2026). From strain to strength: Enhancing the benefits of employing temporary nurses. Nursing Management, 33(5), 20-25. https://doi.org/10.7748/nm.2026.e2158

Vardavas, R., Nascimento De Lima, P., Baker, L., Crowley, C., Carman, K., Parker, A. M., & Abir, M. (2026). Modeling the disruptive impact of the COVID-19 pandemic on nurses' supply and wages. Frontiers in Epidemiology, 6, 1631582. https://doi.org/10.3389/fepid.2026.1631582