Hospital staff shortage: the role of the competitiveness of pay of different groups of nursing staff on staff shortage Jean-Baptiste Combes a, Robert Francis Elliottb and Diane Skåtunb

aUniv Rennes, EHESP, CNRS, ARENES – UMR 6051, Rennes, France; bHealth Economics Research Unit, University of Aberdeen, Aberdeen, Scotland

ABSTRACT Shortages of nursing staff in OECD countries have been a preoccupation for policy makers. Shortages of staff may be the consequence of uncompetitive pay. In the private sector, employ- ers in different regions can offer different pay rates to reflect local amenities and cost of living. Hospitals in the UK however cannot set the pay for their employees, and as a result they might therefore incur staff shortages. Moreover, occupational groups do not operate in isolation. Shortages of staff may also be the consequence of the competitiveness of pay of an alternative group of staff. This is investigated using two distinct groups of nursing staff: assistant nurses (ANs) and registered nurses (RNs) working in English hospitals in 2003–2005 using national-level data sets. We find that an increase by 10% of the pay competitiveness of RNs decreases the shortage of both the RNs and of ANs by 0.6% and 0.4%, respectively.

KEYWORDS Wage regulation; local pay; standardized spatial wage differentials; shortage of staff; nurses; pay competitiveness; labour substitution

JEL CLASSIFICATION I18; J31; I11

I. Introduction

Shortage of nursing staff in OECD countries is a key policy issue. This article shows that where the competitiveness of pay increases, shortage of nur- sing staff is reduced. In particular, we consider the interaction of pay competitiveness between two groups of nurses. Previous literature in this area has considered single occupations in isolation. However, the health service is characterized by different occupations working as members of a larger team. Where the pay competitiveness of one group has an impact on their own shortage, it may also impact on another group in the pre- sence of underlying links between the two. We examine this using two distinct staff groups within nursing: registered nurses (RNs) who are qualified to a degree level and licenced to practise as such under the UK nurse regulatory authority and assistant nurses (ANs) who have no formal nur- sing qualification and operate out with the regu- latory authority.

This extends the literature which has already established the link between the local competitive- ness of pay of RNs with local variations in vacancy rates (Elliott et al. 2007, 2010). We show in this

article that there is no evidence that hospitals have difficulties in hiring ANs because of their own pay competitiveness, but an increase of 10% of RN pay competitiveness reduces the AN vacancy rates by 0.4% and RN vacancy rates by 0.6%. Where pay for RNs is uncompetitive, ANs might foresee higher workloads in the current post or uncompe- titive pay in potential future roles if they were to move up the career path to become RNs. Either way this would work as deterrent.

II. Pay competitiveness

Pay in the private sector is expected to differ between geographical areas within the UK due to differences in gender, age, education, industrial and occupational composition of the workforce. Higher pay in some areas of the country is also expected where the cost of living is higher while higher pay is also necessary to compensate for less pleasant working environments or amenities (Smith 1776; Rosen 1986). It is this latter form of geographical variation in pay that captures the competitiveness of pay through its ability to adjust to local labour market conditions. In the UK, we

CONTACT Jean-Baptiste Combes [email protected] Lecturer in Health Economics at the School of Public Health, 2 Avenue Gaston Berger, 35043 Rennes cedex, France.

APPLIED ECONOMICS 2018, VOL. 50, NO. 60, 6547–6552 https://doi.org/10.1080/00036846.2018.1490000

© 2018 Informa UK Limited, trading as Taylor & Francis Group

expect this to feature within the private sector where only a small proportion of staff have their pay set by collective bargaining and an even lower proportion have their pay set nationwide (Metcalf, Hansen, and Charlwood 2001). Thus, pay in the private sector is free to adjust to reflect local labour market conditions.

Pay in the public sector in the UK is set nationally by quasi arbitration bodies. Pay set in this way or by collective bargaining is less likely to vary locally (Traxler and Brandl 2011). In the UK, where the healthcare sector is dominated by public sector pro- vision within a National Health Service (NHS), nurses pay is set nationally by the NHS Pay Review Body. Therefore, pay offered by hospitals will not adjust to the local cost of living or working environ- ment conditions (Elliott et al. 2007).Where local pay is not able to reflect local labour market conditions, hospitals will have difficulties in attracting staff.

The methodology in our article follows that as outlined by Elliott et al. (2006), (2010). Using the private sector as a benchmark, we extract out the pure spatial element of wage variation by standar- dizing for other elements known to affect pay. This generates a standardized spatial wage differential (SSWD). Thus, assuming the private sector repre- sents the equilibrium in the local labour market: it is the standardized pay that is required to attract an employee to this geographical area. Given the national wage structure within the public sector, we expect less variation in standardized wage dif- ferentials within the public sector. By comparing the patterns in SSWDs between the private and public sector, we can construct a measure of the local pay competitiveness of the public sector: the public–private pay gap.

We identify appropriate private sector com- parators for both ANs and RNs using the Standard Occupational Classification (SOC) sys- tem, where individuals are classified according to employment characteristics (see Office National Statistics (2000)). We use SOC groups represent- ing ‘personal services occupations’, and ‘associate professional and technical occupations’ as the pri- vate sector comparators for ANs and RNs, respec- tively. The competitiveness of pay of ANs and RNs in any area can therefore be defined as the gap between their SSWD and that of their comparator within the private sector:

gaps ¼ SSWDs PUBLIC � SSWDc

PRIVATE (1)

where s = (AN, RN) and c = (SOC6, SOC3) These two public–private pay gap measures for

ANs and RNs are then used to consider the effect of pay competitiveness on both their own shortages but also to test for interactions of pay competitive- ness on the measure of shortage of the other.

III. Data

Our empirical analysis utilizes data from England for 2003–2005. The Annual Survey of Hours and Earnings is used to compute the SSWDs. This is a large national data set based on 1% sample of employees identified through the UK’s government (Pay as you Earn) tax system. This data is pooled over the 3 years to ensure the most precise estimates and reduce any year on year volatility. Vacancy rates were constructed as our measure of shortage of staff. This combines data on staffing levels with vacancy counts for positions which had been adver- tised for more than 3 months. This data was pro- vided by the Department of Health and is at hospital trust level. There are 209 hospital trusts (an administrative unit comprising of one or more hospital sites providing care to the local population) in each of the 3 years resulting in 627 observations.

The distribution of vacancy rates is presented in Table 1. On average, there is a vacancy rate of 1.2% for ANs and 2.5% for RNs. More than half of the hospital trusts do not have any vacant posts for ANs, while for RNs, this is only the case for 17% of hospital trusts.

IV. Empirical specification

SSWDs

The first stage in the empirical analysis is the construction of our measure of pay competiveness using the private–public pay gap. This is based on the estimation of SSWDs from four wage

Table 1. Vacancy rates distribution in hospitals, 2003–2005 (627 Obs.). Vacancy rates Mean SD NB Null P30 P50 P70 P90

Assistant nurses 0.012 0.028 53.27% 0 0 0.007 0.036 Registered nurses 0.023 0.032 17.38% 0.004 0.012 0.023 0.062

6548 J.-B. COMBES ET AL.

equations. Two represent the two public sector staff (AN, n = 2993 and RN, n = 10,761) and two represent their comparators in the private sector (

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