Is Healthcare Job Growth Bad for the Economy?

With nationwide job creation slowing to a crawl, we often point to the robust healthcare sector as a model for an optimistic employment outlook. But as scholars and economists have recently pointed out, unfettered job growth can often have unintended negative consequences.

First, there’s the price to pay in order to create all these new healthcare jobs. As two Harvard economists recently argued in the New England Journal of Medicine, more health care jobs often contribute directly to higher health care costs.

Professors Katherine Baicker and Amitabh Chandra write, “Salaries for health care jobs are not manufactured out of thin air — they are produced by someone paying higher taxes, a patient paying for more health care, or an employee taking home lower wages because higher health insurance premiums are deducted from his or her paycheck.”

From the viewpoint of Profs. Baicker and Chandra, the goal of policymakers should be to lower healthcare costs while helping hospitals and clinics maintain the ability to provide efficient healthcare services. However this is rarely the case. Healthcare workers comprise more than 10% of the total U.S. workforce, more than double what it was 50 years ago.

With such a large increase, it would be reasonable to assume that the quality of healthcare has improved drastically since the 1960s. While it is true that ailments that were once a death sentence can now easily be treated and life expectancies in America have risen, the cost associated with these medical advancements has risen almost exponentially. The chart below illustrates how much faster U.S. health care costs are rising in comparison to other countries studied by the Organization for Economic Cooperation and Development (OECD).

rising health care costs

According to Prof. Chandra, such growth is unsustainable. “We can’t expect the health care industry to both deliver affordable health care and contribute to job growth,” he said. “That’s asking too much.”

The authors argue that jobs could be lost in health care, or shifted as the needs change. But money saved by trimming health jobs could mean higher wages for other workers or expanded job creation programs more likely to benefit the most vulnerable workers.

“Treating the health care system like a (wildly inefficient) jobs program conflicts directly with the goal of ensuring that all Americans have access to care at an affordable price,” they write.

Not taking significant steps to control health spending could mean job losses for other workers, according to a Blue Cross Blue Shield report published in April by MIT economist Jonathan Gruber and analyst Ian Perry.

They projected that Massachusetts employers would spend $33 billion on insurance for their workers in 2019, up from $18 billion in 2010, if current trends in the growth of health costs continue. The average worker in the state would lose about $17,000 in take-home pay, including lost wages and higher premium contributions.

Gruber and Perry also project that increased employer costs will be too big to pass on to employees. As a result, they said, companies would have to reduce profits or lay off workers.

A graph recently created by Business Insider shows the strong inverse relationship between the number of new jobs created in the healthcare sector and the reduction in overall national gross domestic product (GDP).

business insider gdp healthcare graph
The red line represents the year-over-year percentage change in healthcare’s share of total employment. So on a report like yesterday’s, it goes up, because healthcare’s share of total employment jumps. The green line represents the year over year change in GDP (but we flipped it upside down). The correlation between the two lines is pretty remarkable. And as you can see, the red line is starting to rise again, which should suggest that the green line will move higher again, representing further slowdown in GDP.
Healthcare will most likely continue to be the bright shining star in employment reports for months or even years to come. The price we will pay for such growth remains to be seen.–and-that-might-not-be-good-news/2011/08/02/gIQAby3kwI_blog.html

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