Employee Raises at No Cost?

June 24, 2020, Ben Swett, SeniorCare Investor - One academic believes it won’t cost nursing homes a dime to raise wages.  Okay, here I go again about The New York Times.  This time, it is not about a reporter, but a contributing academic who is an economics professor at Northwestern University, Seema Jayachandran.

Last weekend she wrote about how higher hourly wages can increase productivity, which can translate into higher-quality service.  She based her conclusions on two studies looking at department stores and nursing homes.  I will talk about the latter one. 

The study she cites suggests that if every county increased its minimum wage by 10%, there could be 15,000 fewer deaths in nursing homes each year. 

While I am sure an extra $1.00 to $1.50 per hour would make for a happier employee, I really question that conclusion.  That would be about a billion dollars a year in revenue the industry would be leaving on the table.

But the real point that got my knickers in a knot was that providers’ profits would remain steady after the wage increases because they would be “able to defray their increased costs by charging higher fees.”  Hellooo, Medicare and Medicaid, which pay for 85% of the patients in nursing facilities, don’t increase their rates to nursing homes just because you raise your wages.

She goes on.  “There are few alternatives to using a nursing home, so if the industry raises prices, it will not lose too many customers.

Really?  All I can ask is, what cave did she crawl out of?  While this may be funny to some people, it is sad because the consumer who reads The New York Times will believe it.

And it is sad because the new White House commission on nursing homes is filled with academics with no practical experience.  Time to come out of the Ivory Tower, or cave, and spend a week working in a nursing home. 

And please, will someone unknot my knickers?