Friday’s jobs report showed an anemic gain of only 18,000 non-farm jobs across the entire economy. Health services accounted for an astonishing 13,500 of these new jobs. While it certainly is not typical for the health sector to account for three quarters of month-to-month job growth, employment growth in the health sector has outpaced that of the rest of the economy to a considerable extent for at least eight decades.
In every decade since the 1930s, total health services employment has increased two to three times as fast as the number of workers in the general economy or private business. Since 1930, if health services employment had increased only as fast as in the rest of the economy, the health sector would have employed nearly 11 million fewer workers in 2009. That’s the equivalent of one-twelfth of all non-farm employment in that year.
These numbers exclude workers in the goods-producing part of the health industry (pharmaceuticals and medical devices), along with employment by health insurers. It is uncertain whether inclusion of such workers would appreciably alter the trends shown. Because the general population grows at approximately 1 percent a year, the numbers in this chart also illustrate the ratio of health services growth to the overall population. That is, in the 1960s health services employment grew roughly six times as fast as the nation’s population. In none of those 80 years has health sector growth been less than 2 percent a year; in the 1970s, the annual increase reached almost 7 percent. These trends are generally consistent with the pattern of growth in healthcare expenditures relative to the economy, but not precisely. In light of the surge in spending that occurred in the aftermath of the arrival of Medicare and Medicaid in the mid-1960s, the extremely high relative growth in health sector employment might not be surprising. However, even in the 1950s, the health sector work force also grew three times as quickly as employment in private businesses overall. The 1980s were characterized by increasing concerns about rising health expenditures; indeed, this became an important issue in the 1992 election and a failed effort at health reform in 1993–94. Conversely, the late 1990s saw a noticeable slowdown in health spending, yet that increase in health industry employment relative to the rest of the economy during that decade was practically the mirror image of the pattern in the 1980s.
From 2000 to 2007, growth in health sector employment reached its lowest level since the 1930s in absolute terms. Yet this growth rate nevertheless was triple the rate of increase in both overall civilian employment and private business employment during that period. And even as the private sector shed more than 7.5 million jobs between 2007 and 2009 (not shown), health services employment grew by 4.4 percent. For at least 40 years, employment consistently has grown faster in ambulatory health services than in health facilities—a fact reflected in the latest jobs report: jobs in ambulatory health care grew by 16,500, whereas hospitals and nursing homes saw a decline of 3,000 jobs.
The dependence of the economy on health sector jobs highlights one of the risks of the Affordable Care Act. The Medicare actuary has estimated that if the massive cuts contemplated for Medicare are put into effect as scheduled under this new law, Medicare and Medicaid payment rates for inpatient hospital services will by 2020 be 40 percent below the rates paid by private health insurers. Consequently, roughly 15 percent of hospitals, skilled nursing facilities and home health agencies paid by Medicare would (according to the actuary’s projections) become unprofitable within the next ten years. How many of these facilities would actually go bankrupt remains to be seen, but such figures surely do not bode well for continued growth in employment in this sector. Similarly, under the cuts scheduled in the president’s health plan, Medicare payment rates for physicians by 2020 will be about half the levels paid by private insurers—lower than even the rates paid by Medicaid. Leaving aside the indisputable consequences such anemic payment levels would have on access to care, they also would have obvious adverse implications for employment in the ambulatory health services sector.
So long as healthcare employment growth outpaces the rate of growth in employment in the rest of the economy, healthcare is likely to grow as a share of GDP as well. This may distress those who believe we spend too much on healthcare. At the same time, we must recognize that every dollar of health spending also represents a dollar of income to someone employed in the health sector. That makes cutting health spending a two-edged sword. Making healthcare more affordable may seem like a Pyrrhic victory if it is achieved at the price of slower economic growth and/or higher unemployment.
Christopher J. Conover is a research scholar at Duke University’s Center for Health Policy and Inequalities Research. The charts shown are from his new book American Health Economy Illustrated, to be released in January 2012 by AEI Press. See PowerPoint version of Figure 10.1a and Excel spreadsheet on long-term employment trends for data, sources, and methods.