NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Factor Substitution and Unobserved Factor Quality in Nursing Homes

John Cawley, David C. Grabowski, Richard A. Hirth

NBER Working Paper No. 10465
Issued in May 2004
NBER Program(s):   HE

This paper studies factor substitution in one important sector: the nursing home industry. Specifically, we measure the extent to which nursing homes substitute materials for labor when labor becomes relatively more expensive. From a policy perspective, factor substitution in this market is important because materials-intensive methods of care are associated with greater risks of morbidity and mortality among nursing home residents. Studying longitudinal data from 1991-1998 on nearly every nursing home in the United States, we use the method of instrumental variables (IV) to address the potential endogeneity of nursing home wages. The results from the IV models are consistent with the theory of factor substitution: higher nursing home wages are associated with lower staffing, greater use of materials (specifically, physical restraints), and a higher proportion of residents with pressure ulcers. A comparison of OLS and IV results suggests that empirical studies of factor substitution should take into account unobserved heterogeneity in factor quality.

download in pdf format
   (240 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (240 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10465

Published: Cawley, John, David Grabowski, and Richard Hirth. "Factor Substitution in Nursing Homes." Journal of Health Economics, March 2006, 25(2): 234-247.

Users who downloaded this paper also downloaded these:
Grabowski, Gruber, and Angelelli w12361 Nursing Home Quality as a Public Good
Lichtenberg w17750 The Effect of Pharmaceutical Innovation on the Functional Limitations of Elderly Americans Evidence from the 2004 National Nursing Home Survey
Town, Wholey, Feldman, and Burns w11087 Did the HMO Revolution Cause Hospital Consolidation?
Schiff Factor Substitution and the Composition of Input
Allen w1649 The Effect of Unionism on Productivity in Privately and Publicly Owned Hospitals and Nursing Homes
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us