Employment in Health Care: A Crutch for the Ailing Economy during the 2007-09 Recession: During the Last Recession, Employment in the Health Care Industry Grew While Total Nonfarm Employment Was Down by More Than 7.5 Million; Although Growth in Health Care Was Not as Robust as in the Previous Two Recessions, the Industry Still Gained 428,000 Jobs

By Wood, Catherine A. | Monthly Labor Review, April 2011 | Go to article overview
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Employment in Health Care: A Crutch for the Ailing Economy during the 2007-09 Recession: During the Last Recession, Employment in the Health Care Industry Grew While Total Nonfarm Employment Was Down by More Than 7.5 Million; Although Growth in Health Care Was Not as Robust as in the Previous Two Recessions, the Industry Still Gained 428,000 Jobs


Wood, Catherine A., Monthly Labor Review


The health care industry added 428,000 jobs throughout the 18-month recession from December 2007 until June 2009 and has continued to grow at a steady rate since the end of the recession. (1) Historically, health care employment has been immune from fluctuations in the business cycle, as shown by the industry's continued growth throughout previous recessions. Indeed, the industry has been among the leading contributors to overall job growth during recessions. In an economy hit with more than 7.5 million job losses, a national unemployment rate that rose to 10 percent in October 2009, and large declines in gross domestic product (GDP), all since the start of the most recent recession, the health care industry stood out as one of a few areas that continued adding jobs, thereby serving as a crutch for the ailing economy.

Industry trends during downturns

As in past recessions, the health care industry served as a beacon of job opportunities while total nonfarm employment plummeted in the 2007-09 recession. (See chart 1.) Fiscal stimulus packages funded hospitals through additional Medicaid subsidies and increased health-related spending during the recession, a common accompaniment of economic downturns. These federally funded programs effectively made health coverage more affordable for, and available to, the unemployed. In the 2007-09 recession, one such program allowed the unemployed to finance and maintain their employer-sponsored private health coverage: the temporarily extended Consolidated Omnibus Budget Reconciliation Act (COBRA) guaranteed those out of work temporary coverage through subsidies that enabled them to pay their premiums. Fiscal stimuli also enabled hospitals to increase hiring, improve information technologies, and increase emergency care services to the unemployed, with Medicaid funding typically covering these services, thus offering a more economical substitution for primary care providers. (2) One important opposing factor was the heightened cost of care, which weakened the demand for health services and resulted in a slower rate of job growth than in previous downturns. (See chart 2.) In the longest recession since World War II, government subsidies were insufficient to meet health care costs throughout the 18-month downturn. Consequently, coverage became more limited and unaffordable as (1) hospitals overspent Medicaid expenditures that were driven by the addition of 3.5 million new enrollees, (2) programs expired, and (3) health care providers were forced to make budget cuts and hire at a slower rate. As the number of medically uninsured increased by 3.8 million (from 42.7 million in 2008 to 46.5 million in 2009) and Medicaid enrollments escalated, limited resources shrank and the cost to the patient increased significantly. (3)

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The low growth rate of national health spending throughout the 2007-09 recession explains why job growth progressed at a slower pace than during previous recessions. In 2009, national health spending grew by 4.0 percent, the lowest annual rate of increase in the 50-year history of the National Health Expenditure Accounts. This rate was preceded in 2008 by 4.7-percent growth, the second-lowest historical rate. Both rates of growth of health care spending in the most recent recession are significantly lower than the 8.5-percent and 11.0-percent rates posted in the recessions of 1990 and 2001, respectively. (4) As one source put it, "The recession contributed to slower growth in private health insurance spending and out-of-pocket spending by consumers, as well as a reduction in capital investments by health care providers." (5) The increased burden the recession placed on households, businesses, and governments limited the financial resources that were available to pay for health care. As they lost their jobs and, consequently, their employer-sponsored private health care coverage, individuals could not afford health care and were forced to discontinue maintenance care and elective procedures, thus weakening the demand for health services.

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Employment in Health Care: A Crutch for the Ailing Economy during the 2007-09 Recession: During the Last Recession, Employment in the Health Care Industry Grew While Total Nonfarm Employment Was Down by More Than 7.5 Million; Although Growth in Health Care Was Not as Robust as in the Previous Two Recessions, the Industry Still Gained 428,000 Jobs
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