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The labor market of nurses has been plagued by reports of persistent shortages, which raise concerns about the quality of health care. The formulation of appropriate policy intervention requires knowledge of the factors shifting the demand and supply of nurses. This paper develops a model of the nursing labor market, in which the demand and supply curves are identified from the observed employment and wages using econometric techniques. It is found that the short term wage elasticity of supply is not significantly different from zero, and hence the employment trends in the nursing labor market follow a cobweb pattern, where the quantity supplied adjusts to exogenous increases in demand, but with a lag, causing shortage in the meanwhile. An appropriate policy instrument would be to subsidize nursing education, which would increase supply in anticipation of increased future demand.



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