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There is an ongoing debate about the reasons for the growth of temporary employment of registered nurses (RNs). Some argue that efficiency incentives to increase flexibility and reduce labor costs are the principal cause, while others point to shortages of RNs as the stronger determinant. Using hospital-level data from California's Office of Statewide Health Planning and Development, we find a significant trend of increasing demand for agency nurses during the years of RN shortage. Demand rose with inpatient days, patient demand fluctuation, and the level of fringe benefits. Competition between hospitals and unionization, however, did not affect hospitals' demand for temporary RNs.

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