MA Economics

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Dynamic response of professional labor supply to global demand shocks: the case of Filipino nurses
(2013-04) Punongbayan, Jan Carlo B.; Capuno, Joseph J.
This paper investigates the response of the domestic supply of nurses to changes in global demand using a dynamic labor market model. We focus on the effect of exogenous foreign demand shifts on local supply, seeing that this captures the export-oriented nature of the local nursing market. In particular, we take nurse deployments to the US and UK as our demand shifter, owing to the huge supply response borne by deployments to these countries at the turn of the century. By estimating supply-demand equations and deriving overall market dynamics, we find that a sudden increase in deployment abroad generates a considerable supply response that does not dissipate and return to equilibrium until several periods after the onset of the initial shock. Our findings also suggest that a backward-looking model of the structural supply equation is able to capture the local nursing market's cyclical response to exogenous demand shocks, and entrants into the nursing labor market rely largely on past market conditions to inform their current decisions. To our mind this builds a strong case for the public provision of labor market forecasts to provide occupational guidance to prospective nursing entrants and minimize the occurrence of cycles and imbalances in the market's supply and demand.