Nursing homes hire too many permanent nurses, making the whole market less flexible

Companies often hire permanent staff even when temporary workers would be more efficient. This makes the overall labor market less flexible than it should be. This inefficiency costs firms money. They do not fully account for the value that temporary workers add to the entire market.

Companies often hire more permanent staff than they need. They do this to create a buffer against uncertain demand. This paper shows that this strategy makes the entire labor market less flexible. It also means companies pay more than they should. They do not fully value the flexibility that temporary workers provide to the whole system. The paper finds this flexibility is worth about 7% of wages.