complex discipline, one that requires skilled, knowledgeable,

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1 C EONTINUING DUCATION SERIES CE Objectives and Evaluation Form appear on page 142. Christina M. Graf ADN to BSN: Lessons from Human Capital Theory Executive Summary Despite the recommendation by the National Advisory Council on Nurse Education and Practice to increase the percent of baccalaureate (BSN) prepared nurses in the workforce to at least two-thirds by 2010, 37 the workforce and 60 new grads were associates-degree (ADN) prepared as of Using the Human Capital Theory, a model was created to evaluate if increases in earnings achieved by ADNs when they earned a higher degree outweighed the cost of their education. ADNs who earn their BSN do, in fact, earn a significant annual wage premium. However, after projecting net lifetime earnings and an internal rate of return (IRR), the model revealed that for more than half of the ADN-to-BSN graduates, the costs of education were greater than the salary increase. Younger nurses were more likely to experience a positive IRR due to the longer term of the investment, and were nearly four times as likely to pursue an advanced degree with a positive expected IRR. Employers who encourage BSN completion early in the career trajectory and provide tuition support will be better able to demonstrate a positive rate of return and influence the choice to pursue higher education. NURSING IS A DYNAMIC and complex discipline, one that requires skilled, knowledgeable, and autonomous practitioners. Supply and demand projections over the next several decades focus not only on the need for increasing numbers of nurses but also on the increasing need for nurses prepared at the baccalaureate and advanced degree levels. Recent analyses have identified clinical implications of degree preparation, demonstrating that higher proportions of baccalaureate-prepared nurses (BSNs) are associated with improved patient outcomes (Aiken, Clarke, Cheung, Sloane, & Silber, 2003; Clarke & Connolly, 2004; Fagin, 2001). Surveys describe the preference of chief nurse executives for hiring baccalaureate graduates (Goode et al., 2001; Smith & Crawford, 2004), and Magnet-designated hospitals, recognized for their excellence in nursing practice, typically have higher percentages of BSNs (Aiken, Havens, & Sloane, 2000). Faculty shortages that have resulted in extensive waiting lists of applicants for nursing programs highlight the need for nurses prepared at advanced educational levels (American Association of Colleges of Nursing, 2003; National Advisory Council on Nurse Education and Practice [NACNEP], 2002; Valiga, 2002). In its 2003 report, the NACNEP reiterated its recommendation that, by 2010, two-thirds of the RN workforce should have at least a baccalaureate degree. Over the past several decades, however, the number of associatedegree nursing (ADN) graduates has constituted an increasing proportion of all basic nursing graduates. In 2000, ADN nurses composed 37 the nurses in the active workforce (Spratley, Johnson, Sochalski, Fritz, & Spencer, 2000) and accounted for 60 new graduates (National Center for Health Workforce Analysis, 2002). One study of nurses entering the workforce indicates that, in the younger (under age 35) cohort, over 70% are prepared at the associate degree level (Buerhaus, Staiger, & Auerbach, 2004). Given this trend, and in the absence of any moderating circumstances, the proportion of ADNs in the nursing workforce will increase at a faster pace than that of baccalaureate and higher-degree prepared nurses, at the same time that the demand for nurses prepared at the more advanced levels continues to increase. One strategy to meet this demand is to promote increased enrollments at the baccalaureate entry level. However, this strategy CHRISTINA M. GRAF, PhD, RN, is Director of Patient Care Services Management Systems, Massachusetts General Hospital, Boston, MA. 135

2 C E ADN to BSN: Lessons from Human Capital Theory alone is unlikely to reverse the trend in the foreseeable future. ADN graduates tend to be older than BSN graduates (Spratley et al., 2000). They are also more likely to be married and have children (Spetz, 1999). For many, associate degree programs provide an attractive alternative to baccalaureate programs that may require more substantial investment of time and money before generating a return in the form of reasonably wellpaying jobs. Thus a complementary strategy is to provide opportunities for educational advancement for practicing nurses. At the present time, only 16 ADN graduates have acquired advanced nursing degrees (Spratley et al., 2000). To meet the projections for nurses with baccalaureate and higher degrees, educational advancement of more significant numbers of ADNs is needed. Therefore, it is important to determine what influences ADNs to pursue advanced education, and what motivates or discourages individuals considering such a course. Human capital theory suggests that individuals will pursue advanced education if the benefits of obtaining the education outweigh the costs (Becker, 1993). Financial reward is rarely the sole motivator for ADNs pursuing baccalaureate education, but monetary concerns can be a significant barrier to educational advancement (Delaney & Piscopo, 2004). Using the framework of human capital theory, this study examined three questions: Do associate degree nurses who obtain a baccalaureate degree receive a wage premium in the form of higher salaries? If so, is there a net lifetime earnings benefit; that is, does the salary difference over the course of the nurse s working life outweigh the costs of obtaining the advanced degree? And does the net earnings benefit affect the likelihood that the associate degree nurse will pursue baccalaureate education? This study used a wage regression model to determine the premium to education; a simulation model to calculate the net lifetime earnings benefit in the form of internal rate of return (IRR); and a logistic regression and probability model to identify the extent to which net earnings benefit influences the decision to pursue baccalaureate education. THEORETICAL FRAMEWORK Human capital theory hypothesizes that individuals will pursue advanced education if the incremental benefits outweigh the incremental costs of obtaining the education. Figure 1 depicts a model of human capital theory that is developed in this article. Capital is defined as assets that generate future income or desired outcomes. Human capital refers to personal assets that individuals possess or acquire and includes both innate skills and abilities and acquired training and education. Individuals investing in education incur certain costs: direct costs, including tuition, fees, books, and other expenses; opportunity costs, such as reduced earnings because of fewer hours worked during school years or loss of interest on money allocated to tuition; and nonmonetary costs, those which cannot be quantified monetarily but are of value to the individual, Figure 1. Human Capital Theory for example, loss of leisure time. As a result of the investment, they acquire certain skills that enhance their productivity, or certain credentials that signal potential for productivity, or both. These assets are of value to employers and provide the individuals with the benefits of employment, advancement, and lifetime earnings. The magnitude of these benefits is influenced somewhat by personal characteristics such as gender, race, and, most significantly, age (Becker, 1993; Woodhall, 1987). Human capital theory suggests that ADN graduates who invest in baccalaureate education will realize an economic benefit in future lifetime earnings. METHODS Data Sources and Sample The principal data sources for this study were the National Sample Surveys for Registered Nurses (NSSRN) of March 1996 and March The target population was nurses whose basic preparation occurred in the United States and at the associate nursing degree level; whose highest nursing preparation is at either the associate nursing degree level (ADN/ADN) or at the baccalaureate nursing degree level (ADN/BSN); and who are currently under age 65 and working in the United States (see Table 1). 136

3 ADN to BSN: Lessons from Human Capital Theory C E N Average Annualized Wage Gender (% Female) Race (% White) Marital Status (% Married) Average Age Data Analysis Wage regression. To determine whether there is a wage premium for ADNs who obtain a BSN, wage regressions were run comparing ADNs who had a baccalaureate degree with those who did not. The analysis controlled for demographic differences (gender, race, marital status, and age), geographic differences (region of the country and location in a metropolitan area), and differences in experience (calculated as length of time from year of graduation from the basic degree program to the year of the survey). Simulation model. To quantify the impact of the wage premium on lifetime earnings, a simulation model was run. The first step was to calculate the impact of the demographic, geographic, and experience variables on total wages for ADNs who at the time of the study held a BSN degree and for ADNs who did not. Using these results, it was possible to construct a what if model: how much would the individual respondents earn over the rest of their careers after completing a BSN compared to earnings during those same years without a BSN degree. The difference between the two is net lifetime earnings. Table 1. Description of Sample Educational Level (% ADN/BSN) Average Years Experience Total (ADN/ADN only) Pre-BSN (ADN/BSN only) Post-BSN (ADN/BSN only) Prior Health Care Experience (% Yes) Age at Graduation from Basic Age at Completion of BSN (ADN/BSN only) Mean 95th Percentile ,941 $40, % 92.2% 71.9% % % ,355 $45, % 91.5% 70.7% % % To determine the net benefit, however, it was necessary to identify the costs of obtaining the advanced degree. This was done by constructing a profile of the average ADN-to-BSN student, using data reported in the NSSRN together with the results reported in a study on education expense (Bednash, Redman, & Southers, 1989). The average ADN-to-BSN student is a nurse who, over the course of 4 years, pursues and completes a BSN degree on a parttime basis, taking 9.3 credits per term; works almost full-time at 36 hours per week (1,881 hours annually); and funds this education primarily through personal resources (salary and savings) offset by some employer tuition reimbursement. This profile became the basis for calculating educational expenses. Direct education costs include tuition and fees (adjusted for tuition reimbursement), books and other educational expenses, related living expenses, and interest on educational loans. Total direct education costs were estimated using available data sources (Bednash et al., 1989; National League for Nursing, 1996; Peterson s Guide, 2000) and adjusted as necessary for the effects of inflation using government statistical data. The total costs were then modified to reflect regional differences in the proportion of private to public baccalaureate programs available and regional variances in cost of living. This yielded a composite average direct educational expense for each geographic region, ranging in 2000 dollars from almost $54,000 in the Mid- Atlantic region of the country to just over $28,000 in the Mountain region. Opportunity costs, the lost wages for hours not worked, were calculated for 199 hours, or the equivalent of 10.6% (199/2080) of the annualized salary for each education year. The net lifetime earnings were analyzed together with the education costs to determine the net benefit, expressed as internal rate of return (IRR). This percentage return on the investment in education can then be compared to the return on other forms of investments as an indication of the soundness, from a personal economic perspective, of a decision to pursue advanced education. Logistic regression and probability. To determine the influence of the internal rate of return, a model was constructed to estimate the likelihood of pursuing advanced education given the financial return on the investment in education. In addition to the IRR, other factors which might be expected to relate to the choice were included: age at time of graduation from the basic program and previous health care experience (pre-nursing health care experience might be expected to be associated with individuals who are on a career continuum and who are thus more likely to pursue educational advancement). The results of this analysis can be used to calculate probabilities that more clearly demonstrate the influence of the IRR on this choice. The representative case assumed age at graduation from the basic program as 30 years, the average age for the original sam- 137

4 C E ADN to BSN: Lessons from Human Capital Theory ple, and no previous health care experience. RESULTS The first question this study addressed was whether there is a wage premium for associate degree nursing graduates who attain a baccalaureate degree. Analysis including all respondents in both the NSSRN 1996 and the NSSRN 2000 data sets confirm that, in both survey samples, there was on Table 2. Internal Rate of Return (IRR) Total Sample Sample Age < = 50 N 9,069 6,457 Mean Median Standard Deviation Minimum Maximum IRR Positive IRR Negative % 54.9% % 38.8% Group IRR Range Table 3. Internal Rate of Return: Distribution by Category N Total Sample Sample Age < = 50 Total Positive N Total Positive IRR4 IRR > = 6.80% % 18.6% % 19.2% IRR3 IRR 3.00% to 6.79% 1, % 47.9% 1, % 49.2% IRR2 IRR 0.00% to 2.99% 1, % 33.5% 1, % 31.6% Positive IRR 4, % 100% 3, % 100% IRR1 IRR < 0.00% 4, % 2, % Total 9, % 6, % average a significant annual wage premium for ADNs who acquire a BSN degree (in 1996 = $2,543 p<0.00, in 2000 = $2,178 p<0.00). This indicates that wages are likely to be higher for the ADN who achieves a baccalaureate degree but does not identify the value of the premium in comparison to the expense incurred in obtaining the degree. The simulation model addressed the second question, the net benefit of obtaining an advanced degree, by first projecting the net lifetime earnings benefit (the difference in lifetime earnings with and without the baccalaureate degree). Analysis of this earnings differential together with the cost incurred in obtaining the education provided an estimate of the financial return on the investment in education, expressed as the IRR. The average IRR for all sub- jects in this sample was negative (-5.5%). The range of IRR includes both positive and negative returns, with positive returns as high as 11%. However, more of the sample had negative returns than positive returns. These results indicate that, on average and for more than half of the ADN graduates, the costs of investing in advanced education outweigh the economic benefits. However, NSSRN data suggest that 95 ADN graduates with BSN degrees obtained them by age 50. Since employment years is a significant factor in calculating IRR, rates of return were examined separately for those with an actual or imputed age at BSN attainment of 50 or younger. For this group, the mean IRR was very slightly positive at 0.1% but markedly greater than that for the total sample. Results are presented in Table 2. Of note is that, although respondents in the younger age group represented 71 the total sample, they accounted for 97 the positive IRRs. The average IRR by itself does not indicate to what extent investment in advanced education is financially more or less rewarding than other investments. To determine this, the respondents were categorized into IRR groups reflecting estimates of long-term and short-term investment yields in 1996, the year of the initial NSSRN study. Table 3 shows the distribution of the total sample and of the sample whose degree completion age was 50 or younger. Excluding those with a negative return on investment, 19 the sample reflected a return on investment equal to or greater than the return on long-term investments, and almost half reflected 138

5 ADN to BSN: Lessons from Human Capital Theory C E Table 4. Influence of Internal Rate of Return (IRR) on Decision to Pursue Baccalaureate Education (N = 9,052) Variables Coefficient Wald Sig IRR Age at Graduation Previous Health Care Experience Constant Log Likelihood L initial L max χ p Table 5. Influence of Internal Rate of Return (IRR) Categories on Decision to Pursue Baccalaureate Education Variables Coefficient Wald Sig IRR4 = IRR > = 6.80% IRR3 = IRR 3.00% to 6.79% IRR2 = IRR 0.00% to 2.99% Age at Graduation Previous Health Care Experience Constant Log Likelihood L initial L max χ p Table 6. Probability of Acquiring Advanced Degree Representative Cases Representative Cases 1 Probability % > Neg IRR IRR > = 6.80% % IRR 3.00% to 6.79% % IRR 0.00% to 2.99% % IRR < 0.00% Variables: age = 30, previous health care experience = 0 cation? This was investigated using logistic regression to examine the relationship of the IRR and other variables to the choice of acquiring a baccalaureate degree. Results demonstrated that IRR was positive and significant in influencing the decision to pursue higher education (see Table 4). A higher IRR increased the likeli- returns that are higher than the estimated short-term rates but lower than the long-term rates. Finally, given that there is a wage premium for ADNs who acquire a BSN and that this can result in positive return on the investment in education, what influence does that have on the decision to pursue advanced eduhood of choosing to pursue advanced education. On the other hand, the older individuals were at the time of graduation from basic program, the less likely they were to pursue advanced education. Previous health care experience had a negative but not significant relationship. Analysis using the categories of IRR supported the conclusion that higher rates of return were correspondingly more influential in the decision to pursue advanced education (see Table 5). As a final step, probabilities were calculated using the coefficients from the logistic regression. The probabilities were calculated for a representative case with age set at 30 and no previous health care experience. This analysis suggests that, compared to a negative IRR, ADNs are almost four times as likely to pursue advanced education if the IRR is greater than 6.8%, three times as likely if the IRR is in the range of 3% to 6.8%, and twice as likely if the IRR is less than 3% but still positive (see Table 6). DISCUSSION At a time of growing demand for baccalaureate-prepared nurses, the proportion of associate-degree prepared nurses entering the profession and in the workforce is steadily increasing. Strategies directed toward encouraging entry at the baccalaureate level can contribute toward meeting the demand. However, the associate degree entry route continues to be attractive because of its shorter and usually less expensive educational program. The projected need for baccalaureate-prepared nurses will only be met, therefore, if large numbers of ADN graduates acquire advanced educational degrees. But at this time, only about 16 ADN graduates have acquired a baccalaureate or higher degree. Associate degree nursing graduates considering baccalaureate education will in some fashion 139

6 C E ADN to BSN: Lessons from Human Capital Theory weigh the benefits and costs of this decision. Professional growth and personal satisfaction may be the more frequent and effective motivators toward acquiring a BSN, but the costs, both direct and indirect, can be significant barriers. Using a human capital theory framework, this study examined the return on investment in education and the influence of this return on the decision to pursue the advanced degree. The study found that, for ADN graduates, there is an earnings benefit associated with an advanced degree (wages tend to be higher with the added BSN degree than without). But the effect of the wage premium in net lifetime earnings is offset by the educational investment expense incurred. On average, the costs of the BSN degree are greater than the cumulative increased earnings over the course of nurse s subsequent work life. For some respondents, however, the return on investment ranged from break-even to as much as 11%, and further analysis confirmed that higher returns increase the probability of ADN nurses choosing to acquire BSN degrees. At the highest rates of return, ADNs are almost four times as likely to pursue the advanced degree than if the returns are negative, and even at the most modest returns the likelihood almost doubles. Although the NSSRN is a well-constructed and well-regarded survey, limitations to this study were imposed by the cross-sectional nature of the data source that does not allow for distinctions between ADNs who have chosen not to pursue baccalaureate education and those who have not yet made a choice; by the construction of the data elements included in the data set, which are largely self-reported and not validated externally; and by the absence of relevant data elements, of scholarships, grants, and tuition reimbursement. Forgivable loans or paid educational time or sabbaticals that underwrite the nurse s education in exchange for a commitment to a specified postgraduate period of service can benefit both the student and the organization. Opportunity costs can also be affected by providing options for the student to coordinate the demands of education and work life effectively. It is important to note that ADNs pursuing a BSN degree continue, on average, to work almost full-time schedules. Given that ADN graduates are more likely to be older, married, and with families (Spetz, 1999; Spratley et al., 2000), such work schedules coupled with the demands of school may be prohibitive for many. Increasing the subsidization of education may make it possible for the ADN-to-BSN student to work fewer hours during the school term. Creative and flexible scheduling patterns are also necessary to support the nurse balancing work, school, and home responsibilities. On-site and distance learning opportunities, developed in cooperation with baccalaureate program educators, can make degree courses more accessible and reduce or eliminate travel time. Increasing the earnings benefit is critical to improving overall return, particularly at the baccalaureate level. Health care organizations do not consistently provide a substantial wage differential for advanced preparation at a given level. This is particularly true at the staff nurse level, where practice expectations and therefore salary rates may be similar for both the ADN/ADN and the ADN/BSN. Wage premiums based on educational preparation, making it worthwhile financially as well as professionally, can also encourage ADN graduates to adsuch as actual years of practice in nursing. Despite these limitations, this study raises issues that have implications for nursing as the profession addresses the increasing need for nurses educated at Increasing the earnings benefit is critical to improving overall return, particularly at the baccalaureate level. the baccalaureate and higherdegree levels. Given the study findings, and considering the relatively small percentage of ADN graduates who have acquired a BSN, it is reasonable to conclude that, although a positive net earnings benefit can influence ADN graduates to acquire the BSN degree, for many the current potential return on investment is not sufficient to affect the choice of a large number of these nurses. If more ADN graduates are to be encouraged to advance educationally, enhancement of net earnings benefit should be considered as one strategy to promote this outcome. This can be accomplished both by decreasing the investment cost and by increasing the earnings differential. Investment costs include both educational expense and opportunity costs. In the profile of the average ADN-to-BSN student constructed for this study, the majority of the direct cost of tuition, books, and fees is borne by the individual student in the form of salary and personal savings. These costs can be decreased by increasing direct subsidization of educational expenses in the form 140

7 ADN to BSN: Lessons from Human Capital Theory C E It is important that ADNs are encouraged and supported early in their careers to consider and pursue advanced education. vance to the baccalaureate level. The study findings related to age are significant to this discussion. Older nurses are less likely to pursue advanced education, and basic associate degree graduates are on average older at graduation than their basic baccalaureate-prepared counterparts. It is important, therefore, that ADNs are encouraged and supported early in their careers to consider and pursue advanced education. Ideally, the ADN program will promote the philosophy of a continuum of learning, with the associate degree as a logical step in a career path that includes educational advancement. In the workplace, managers and leaders can encourage career development directly with the ADN graduate and programmatically in emphasizing professional development and continuing education. Finally, service organizations can partner with academic institutions to provide both career counseling and educational opportunities to ADN graduates in their early career years. SUMMARY Recent projections of nursing workforce are consistent in identifying the need for a dramatic increase in the proportion of nurses prepared at the baccalaureate and higher-degree levels. Given the current trends in the nursing profession for increasing numbers of ADN graduates in the workforce, it is critical that more of these nurses acquire advanced education to meet this need. This study suggests that increasing the benefits that human capital theory posits as accruing to advanced education can influence associate degree nursing graduates to pursue baccalaureate and higherdegree education. $ REFERENCES American Association of Colleges of Nursing (AACN). (2003). Press release: Thousands of students turned away from the nation s nursing schools despite sharp increase in enrollment. 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