11/03/2008 05:12 am ET Updated May 25, 2011

Nursing Homes Are a Good Case of Economics Gone Bad

Why is nursing home care so often so bad?

The latest bad news shows that "more than 90% of nursing homes were cited violations of federal health and safety standards last year." This follows an investigation by the New York Times last year, which found that investor-owned nursing homes had worse conditions, with worse outcomes for patients. Nursing homes that had been purchased by private investment groups had more residents per nurse, more violations reported by regulators, and more residents whose health worsened during their stays. Two-thirds of America's 15,000 nursing homes are owned by for-profit companies. One and a half million people live in nursing homes.

Even as the poor quality of nursing home care has become a cliché, nursing home care costs have been rising faster than those for services in general. According to economist Nancy Folbre, writing in Science, this has to do with increasing demand for paid care as women enter the workforce, and as they get better job opportunities. But the other "problem" is that care workers actually care about their clients, which makes them behave inefficiently. In response, employers create bureaucracy to keep the care workers in line. Because good care work requires hard-to-measure skills and behavior, this defensive action by employers may actually increase costs and reduce the quality of care. Folbre writes: "Unlike the idealized consumers of standard economic theory, care recipients may not know themselves what they need, and they don't enjoy a menu of many alternative choices. Their very lack of consumer sovereignty makes them vulnerable to institutional pressures to cut costs by lowering aspects of quality that are difficult to measure."

The elephant in the room of the care quality crisis is gender. The bedrock of nursing home care is the staff of nursing aides, orderlies and attendants. There are 589,000 of them, with average annual wages are $23,000 - and 89% of them are women.

This gender pattern also fits child care. Child day care centers exhibit many of the same economic problems as nursing homes - where the consumers can't advocate for themselves. But if nursing homes care for the people of the past - retired former workers whose economic contributions are mostly behind them - child day care centers care for the people of the future. Mothering may be "the most important job of all," but when it's done in a day care center we don't pay the workers like it is. Here we find another half a million low-wage female workers: preschool teachers (annual pay $23,000) and child care workers (94% female, annual pay $18,000).

Image from Nancy Folbre.

This doesn't mean child care isn't valuable, it's just not valued, since the pay for women's work doesn't include the value of their love (to put it bluntly). Like parents' unpaid care at home, much of what we invest in children is never accounted for because it's not paid for, according to Folbre's new book, Valuing Children: Rethinking the Economics of the Family.

A recent effort at that accounting comes from, which surveyed mothers and asked them how many hours they spent at the 10 different jobs that they do most: housekeeper, day care center teacher, cook, laundry machine operator, computer operator, psychologist, facilities manager, van driver, chief executive officer and janitor. Then they calculated the wages that would be paid for that job, based on hours worked. The result: for stay-at-home mothers, $116,805; for employed mothers, $68,405. (This comes up briefly every year on Mother's Day.)

The heavy government regulation of nursing homes and child care - ineffective as it may be - reflects the tacit understanding that the market can't fix these problems. That's because the people benefiting from these services aren't the ones paying for them. In the case of children, the beneficiaries are the penniless toddlers themselves, who can't pay, and the rest of us who would like to live among adults who were well cared for as children. In the case of nursing homes, the beneficiaries are the frail patients who can no longer care for themselves - and those of us who would like to live in a society that cares for them.