Must We Bend the Health Care Employment Curve?

Monthly employment figures for June (released on July 8) were much lower than anticipated and have caused new doubts about the robustness of the economic recovery. The increase in payroll jobs was only 18,000, a fraction of what had been expected by most forecasters. Health care added over 13,000 new jobs, down from previous months, but still enough to account for about three-fourths of job growth (Health Sector Economic Indicators July 2011 Labor Brief) and to increase the health care share of jobs yet again. This share now stands at 10.7 percent, up from 9.5 percent in December 2007.

Is this share rising at an unsustainable rate?  Do we need to bend the health care employment curve?  In this period of unemployment rates exceeding 9 percent, let us not consider these questions without first recognizing the stabilizing influence of the health care sector during business cycles.

Health care jobs kept the Great Recession from being even greater and have kept the recovery from being even more sluggish. During the recession, which officially began in December 2007 and ended in June 2009, health care added over 400,000 jobs while the rest of the economy shed nearly 8 million. During the ongoing recovery (June 2009 through June 2011), health care has added over 500,000 new jobs while the rest of the economy has tread water with 2,000 fewer jobs. The impact on jobs is even greater when secondary effects are considered. The Economic Policy Institute estimates that for every 10 new health care jobs there are roughly 12 new non-health care jobs created. Health care workers purchase goods and services that support jobs in the rest of the economy. And when health care jobs grow, jobs are also typically created in industries that produce health care supplies and infrastructure. Counting these secondary effects, the health care sector can be credited with about 1 million jobs during the recession and 1.2 million jobs during the recovery. If health care jobs had simply stayed constant since the start of the recession, there would be 2.2 million more Americans out of work today and the unemployment rate would be 10.6 percent versus 9.2 percent.

The health care employment curve from 1990 to present shows resistance to business cycles. Having established the stabilizing influence of the health care sector during and after the most recent recession, let us take a longer term look at the health employment curve. A number of questions come to mind:  How does this curve relate to the health care cost curve? Does bending the cost curve require bending the employment curve? If so, what health care jobs would be affected and by how much?  

To facilitate comparisons with the health care cost curve, the next two exhibits are patterned after the spending exhibits presented in my May blog. The first exhibit shows the year-over-year percent changes in numbers of jobs in health care (the solid blue line) and the rest of the economy (the dotted red line). Jobs grew more rapidly in health care than in the rest of the economy except for a few periods during the managed care era of the mid to late 1990s. Health care job growth seems largely unaffected by each of the three recessions while jobs in the rest of the economy decline dramatically (one can see why the most recent recession is being called the Great Recession).  

The exhibit also shows the estimated annual rate of increase in the size of the employed labor force if the nation was continually at full employment (the solid purple line). This data series is produced by the Congressional Budget Office (CBO) during the process of creating their full employment “Potential GDP” (PGDP) series. I will refer to this as the growth in full employment workers.

With the exception of a brief 6 month period starting in 1999 (the tail end of the managed care era), health care jobs grew more rapidly than full employment workers. Thus, even if the nation had managed to remain at full employment over this time period, health care jobs would have consistently grown faster than jobs elsewhere in the economy.

 
Year Over Year Growth in Jobs and Full-Employment Workers

Source:  Altarum analysis of BLS and CBO data 

The next exhibit shows that health care jobs as a share of total jobs has increased from 7.3 percent in January 1990 to 10.7 percent in June 2011 (the solid blue line). The health care share grows rapidly during recessions because non-health jobs decline while health jobs continue to grow. Between recessions the share shows relatively little change. It is difficult to identify long-term trends in this series because of its great sensitivity to recessions.

A clearer picture of the long term trend is provided by the health care share of “full-employment” jobs (the dotted purple line). We define full-employment jobs as the number that would exist if the nation was at full employment (just as PGDP is defined as GDP at full employment). As can be seen, recessions do not have much effect on the health care share of full employment jobs. Therefore, as a first approximation, if we were at full employment today, the health care share of jobs would drop from 10.7 percent to 9.9 percent.

A continuation of this trend line through June 2015 would put the health share of full-employment jobs at 10.5. June’s bad news notwithstanding, most forecasters believe we will return to full employment by that date and thus the two lines in the exhibit would converge at that point. This suggests that over the next 4 years, the health care share of actual jobs (the solid line) will decrease slightly to 10.5 percent from its current value of 10.7 percent.

Health Care Share of Jobs

Source:  Altarum analysis of BLS and CBO data. Full employment jobs are computed as proportional to full-employment workers and equal to actual jobs in March 2008.

 Do We Need to Bend the Employment Curve?  Let us now turn to the question posed in the title.  The curve I am referring to is the dotted line in the exhibit representing the health care share of full-employment jobs. It has been increasing at a rate of about 1 percentage point per 8 years. Do we need to bend this curve? 

Let’s start with the assumption that we do have to bend the health care spending curve. Then the question becomes whether or not this can be accomplished without bending the employment curve. Three possibilities come to mind: (1) shift to a lower wage mix of health care workers (via innovative models of delivery); (2) reduce the annual increases in earnings for health occupations; and (3) reduce the growth rate of health spending on non-labor items. If these effects could be accomplished, health care employment could grow faster than health spending. But these effects would be short-term fixes rather than a long-term solutions (for example, one cannot keep lowering the wage mix forever). In the long run, bending the cost curve will mean bending the employment curve.

In the near term, with unemployment at 9.2 percent and the recovery looking increasingly fragile, I hope next month to see 30,000 additional health care jobs (and, more importantly, over 100,000 additional jobs elsewhere in the economy). As for bending the health care employment curve, a quote from a young Saint Augustine seems apropos: “Give me chastity and continence, but not yet.” 

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Columnist Charles Roehrig is a health economist and director of the Altarum Center for Sustainable Health Spending. His column for the Health Policy Forum considers health economics issues and health spending. Columnists are regular contributors to the Health Policy Forum who pose their own opinions and policy positions in the realm of health care and health policy. As a leading nonprofit health care research and consulting institute dedicated to improving human health, Altarum encourages open discussion and debate about the many challenges in health care today. All postings to the Health Policy Forum (whether from employees or those outside the Institute) represent the views of the individual authors and/or organizations and do not necessarily represent the position, interests, strategy, or opinions of Altarum Institute. Altarum is a nonprofit, nonpartisan organization. No posting should be considered an endorsement by Altarum of individual candidates, political parties, opinions, or policy positions. Read more.