Can Wage Setting Process for Canadian Nurses Explain Regional Shortage in this Occupation?

Wage has been identified as one of the determinants of labour supply. To avoid regional shortage, the economic theory of compensating wage differentials suggest having a pay structure that differs between regions, which is typical of a decentralized system. The purposes of this study are to determine to what extent 1) the wage setting process for nurses is centralized and 2) nurse hourly wage differs from one region to another. Two different surveys were designed. Then, we empirically test for standardized regional wage differentials (SRWD) by controlling for variables that reflect human capital and work-related characteristics. Before, nursing shortage in Canada was not addressed using a regional wage differential lens. Results indicate that the wage setting process is centralized, but the wage structure cannot be described as flat: the process generates differentials across regions. We argue that there is a trade-off between efficiency and equity that needs to be reconciled.

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