Abstract

Objectives: The aim of this paper is to quantitatively assess whether staffing factors (e.g. wages, retention rates) have an effect on the likelihood of care home closure, and to what extent.

Background: The social care sector in England is low-wage, suffers from poor retention and has high staff vacancy rates. This could have large implications for costs – e.g. hiring, training and the use of agency staff. If these costs persist over time it could affect the long term viability of a care home. There is some descriptive evidence that suggests that staffing can influence care home closures in England, but little quantitative evidence exists. Efficiency wage theory suggests that higher wages can increase productivity, reduce shirking, attract a better quality staff, and it could also help to reduce staff turnover. We hypothesise that better staffing measures will reduce the chance of closure.

Methods: We create a monthly panel of care homes for the period 2014-16 from the national health and social care regulator (CQC) dataset of registered providers. Around 1% of all care home observations close completely. Using care home staffing data from the Skills for Care National Minimum Dataset for Social Care (NMDS-SC), we estimate the impact that average hourly wage, retention rates, and job vacancy rates have on the likelihood of firm survival.

Results: Using pooled cross-section, population averaged, and random effects probit models we find that higher average hourly wage of direct care staff significantly reduced the probability of closure. Specifically, a one per cent increase in wage above the national living wage of £7.20 per hour reduced the likelihood of closure by 2.1 per cent (95% CI: 0.7-3.4%) for the average care home. Given the close links between labour and quality, the models estimated specifically control for (care home level) quality. Measures of local competition, care home size, type and sector, and local area labour market, need and demand factors are also included in all models. We find no evidence of endogeneity in the estimations, and this includes an explicit test of the data as to whether increases in minimum wage caused the inverse wage/closure relationship.

Conclusion: The results have important implications at a time where the future of social care, including workforce recruitment and retention policy, is under discussion. In particular, the findings support the concept of the social work carer as a vocation, with a wage that reflects this, and therefore care homes should be adequately supported to achieve this.