Nursing Pay Demands Are Bad News for Graduates

New Zealand nurses want more money, or purely and simply, they will strike (http://www.radionz.co.nz/news/national/360103/nurses-want-more-money-or-strike-to-go-ahead).  More money is the only thing that will stop a planned nurses strike from going ahead.  In an economy with 1.1% annual inflation, and annual national wage inflation at 1.8%, the nurses union has rejected a 9% pay increase over a 15 month period.  Pointing to an 11% difference between the top end teacher and nurses salaries, the suggestion is that occupational pay-parity issues is why 9% was  rejected, with 11% being "too low" (http://www.radionz.co.nz/news/national/359810/nurses-strike-action-on-the-cards-over-dhb-dispute).

I did my Masters of Commerce in Economics looking at the role of unions in the health sector labour market, with the results here: www.wiltshirehogan.co.nz.

Cutting to the chase, back in 2014, unions had severely distorted the health sector's labour and output markets, making DHBs unproductive, blocking nursing graduate entry, and extracting higher-than-competitive rewards for their labour.

Because of the health sector unions, DHBs were:

• Employing overall fewer workers than they want to, 
• Paying more for each worker than they should have been, 
• Unable to afford the mix of workers that actually wanted and preferred,
• Were forced to "make do" with the workforce mix they could actually afford,
• Delivering less health services because their affordable workforce mix was wrong,
• Delivering lower quality health services because their affordable workforce mix was wrong.

New Zealand taxpayers coped a double whammy:  they paid more in taxes from the higher labour costs, and they received less and poorer quality health care in return.

Not really "good-o" for Joe New-Zealander...

So, how successful will this round of nursing union demands actually be?  The results from the economic modelling are the suite of own-price and cross-price elasticities derived from my work in Table 1 in my thesis (http://www.wiltshirehogan.co.nz/thesis/Thesis_for_Upload_to_Library.pdf)

Row 5 of Table 1 measures how the quantity of employed nurses relates to the price of nursing and other non-nursing labour prices.  If the price of nursing labour increases 10%, the quantity of employed nurses actually falls 4.9%, everything else being equal (the negatively signed nursing own-price elasticity from row 5, column 4 of Table 1).  If the nurses union is successful at getting a more than 9% pay increase, then they stand to loose about 5% of their employed workforce.

Who Benefits From Nursing Pay Demands?  
First off, the 95% of the remaining workforce who remain employed and receive a 10% pay increase...

But after that, from the Table 1, if the quantity of nurses falls 5% because of their demands, then medical salaries increase 1.5%, allied health workers salaries increase 7.5%, and administrator salaries increase 2.3%.  The demand for these workforces increase and pushes up their salaries, as DHBs substitute away from the overall more expensive nursing labour.

What Would Get Nurses a Better Deal?  
The only workforce change that gets nurses a consistently better off is scale affects - more health services means more nurses employed.  Overall as the health service pot grows bigger, more nurses are needed, and more are employed.

But unions protect the interests of paying members, not those who could be employed...