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Healthcare's share of recent job growth is rising


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September 20, 2006

Healthcare's share of recent job growth is rising

Michael Mandel

Continuing our back-and-forth, Kevin Drum writes:

overall job growth has been exceptionally weak this time around; and there's equally no question that healthcare has been the principal standout. On the other hand, since 2003 non-healthcare industries have accounted for about 80% of all new private sector jobs. I'm not sure this really makes the case that healthcare is the main industry keeping our economy afloat.

Kevin, I've got a new chart for you.

In the three months ending July 2006, the healthcare sector accounted for 32% of new private jobs, by far the biggest single contributor. That's way up from early this year.

The bottom line: As the economy and the labor market slow, healthcare is becoming more and more critical as a source of jobs.

12:21 PM

Health

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Drum is talking about the concept of opportunity cost. If we were not spending as much on healthcare we would be spending it on other things and creating other jobs is his point.

You two are talking past each other because you are talking about different things.

Posted by: spencer at September 20, 2006 01:46 PM

I'm in the healthcare field myself and am constantly dealing with the problem of nursing shortages. It comes as no surprise to me that the job growth is as high as it is. However, in the long run, I am much more interested in productivity. Sure there has been high job growth, but has there been high productivity to match? Given the awkwardness in healthcare with regards to IT, I would say no. As an industry, healthcare did not experience the same gains in productivity as many industries did in the last twenty years.

Although the high job growth is certainly supporting moderate economic growth on many levels, high job growth coupled with average or below average marginal productivity gains and the looming baby boomer demographic will not solve the long term dilemma the nation is facing in ever-increasing healthcare costs and poor coverage.

Posted by: Ty at September 20, 2006 04:42 PM

Michael,

This comment is way off-topic, but I can't find an email address on the blog. Just wanted to say that I saw that you're on the list of speakers for next weeks Accelerating Innovation Conference. I couldn't find any posts announcing it here on Economics Unbound, but I thought you should let your readers know about the conference and maybe give a preview of what you plan on discussing.

Regards,

Chris

Posted by: Christopher at September 21, 2006 03:17 PM

Great Article on health care propping up the economy. As someone who works in the New Orleans area in health care, I have a few comments:

1. Uncompensated Care: The uncompensated care component of clinical health care is a skyrocketing burden that must be addressed on a national level if the US is to continue to provide top flight medical care. Unfortunately, many communities are overburdened with federal mandates (EMTALA/COBRA) to provide free care, especially through their ERs for the uninsured. 46 plus million at last count. Immigration - legal or illegal only adds to the problem, and more smaller businesses are not providing health coverage for their employees in order to survive. If the healthcare arena is so valuable to the economy and job growth, then something must be done to shore up the uninsured problem in America.

2. Technology is a two edged sword: Our hospital just implemented a new enterprise wide software system. Top to bottom. Unfortunately, healthcare workers are now spending more time treating the computer rather than treating the patient. High tech vs high touch. Too many "clicks".

Someone at the 30,000 foot view needs to step back and review the current technology interface and its obstacles to quality care and its counter-productivity that it brings to the bedside.........where the nurse is likely to be typing on a computer instead of being at the bedside or with the doctor discussing care.

In a market where labor is in short supply, capital should hopefully replace some of the labor demand; in most cases, that equation has worked well since the industrial revolution. Unfortunately in health care, the computerization of hospital care has only exacerbated the labor shortage by taking the frontliners away from the patient in exchange for working on the computers. Either we need to simplify the process and eliminate computer work/entries that don't add real value, or we need to add clerical personnel at a lower wage to augment the nursing staff. In that case, even more jobs will be created.

Enough said for now.....

Posted by: John at September 22, 2006 11:46 AM

I don't see healthcare stopping its growth anytime soon. A historian I read noted that each century has one area of the three sciences, biology, physics and chemistry as the dominant one. In the 1700's it was biology. In the 1800's it was definately chemistry. The 20th century was the century of physics.. electricity in every home, cars, computers etc..

The 21st century appears that it will follow the pattern and be the century of biology. Already things people accepted as their fate 50 years ago, people go to the doctor and want to get fixed or cured. Gene therapy, new pharmacueticals and especially stem cells are only going to continue that. Huge numbers of doctors, surgeons, researchers, nurses and all the support staff to run operations are going to be needed.

People will pay anything for their health, and that means it is the ultimate business to be in.

Posted by: aa2 at September 25, 2006 12:03 PM

Let me give you some help professor. Your article is chock full of facts but I think you miss the forest for the trees.

You fret about healthcare costs. Healthcare costs have been rising because the demand curve is galloping off to the right much faster than the supply curve. And (as with college) it's galloping because the money is there. If the money were not there, it would stop galloping and prices would stabilize. (Europe?)

As noted abundantly in your article, there is great need of productive assets in healthcare, and labor is responding. The economy is a computer, and the computer has done its calculations and is moving labor into healthcare (as your article shows, and I could give you more examples).

Our other needs can be more readily satisfied without more labor (offshoring, machine productivity), and so the avalable assets are being allocated most productively. Labor is indeed very tight (not sure you noticed that) and that affects the equation.

If the result is different from 1990-1996, so what? You are seeing the most productive result for THIS era. You'll note that not very much labor is guided into blacksmithing and buggy-whip making either. Your personal preferences about what constitutes a proper, diverse mix of new job creation is of no value. (Sorry, that's just Economics).

You fret about rising costs and you note the flood of labor into health; but you neglect that each new producer is in fact a downward vector on the costs of the service. Your concerns are being addressed right before your eyes.

You claim the labor market would be in a deep coma without healthcare. First, that's a pointless statement, because the economic computer is doing what is most productive despite your preferences. However, you are wrong because if labor were not needed so badly in health, it would be available elsewhere, and the optimal solution would be different. The variables in the labor vs capital vs offshoring equations would be different, as would the focus of available demand (money). Some, most, or all of the labor would flow into other industries (or just the same, remain in other industies).

Without the additional labor, the healthcare industry could not have absorbed the revenues that it HAS taken in; that money would have found other destinations (indisputably stimulating employment needs elsewhere in this service-heavy economy).

It takes an intersection of two to create a job: employer and new hire. Much demand for labor is not crystalized into countable jobs because there is no available new hire found. I at least can attest to this personally.

There are only 7 million unemployed Americans right now. That suggests there no way the economy could haved follow Michael's prescription and have created another 5 million or so non-healthcare jobs in any case. Just not enough warm bodies -- we're not going to have a 1% unemployment rate.

This is an interesting story of the economy allocating resources in a dynamic manner to satisfy the needs of the populace. That's what the economic computer does if the software is not defective. To cast the low unemmplyment rate as some kind of mirage, or to suggest that any of this is masking a fundamentally poor economy is nonsense.

Posted by: Kevin at September 26, 2006 05:46 PM

Kevin,

Your arguments aren't bad, but you assume that health care provision in this country is being done efficiently, which it is not. Despite being "socialists", the European countries provide health care much more efficiently than we do. On average we spend 60% more on health care and our results rank with the worst among industrialized nations. We aren't efficient. If we were, there's a good chance those jobs that are being created in health care wouldn't even need to exist.

Posted by: Brandon W at September 27, 2006 03:22 PM

Brandon, oh, I know there are plenty of inefficiencies in our healthcare, I actually make no claims about that -- my point is that the labor is needed, and so the economy is responding in a rational and productive way, given the limitations of reality and the various shackles on the functioning of a free economy.

I certainly admit the economy is inhibited by what I like to think of as defective "software". For example, the economy is screaming for ever more doctors; but Doctor groups, medical schools, and politicians collude to limit the pipeline so as to protect the interests of current doctors and med schools.

This is an unproductive intrusion into the workings of the free market and does not serve consumers well. You and I couldn't go launch a new med school even if we knew what we were doing. It's illegal (as I understand it).

Your point about Europe is interesting and something I think about. I'm not well informed enough to make a solid argument, but I do have my doubts that the situation really represents what people think it does. One reason we spend more on health is that we can afford to; we're richer than Europeans. (Michael's article alludes to how people will always spend ever more on their health if they've got the money to.)

Also I think it's clear that typically overseas, people are often denied care by government rationing. "Universal" coverage doesn't mean unlimited coverage by a longshot. Resources are limited everywhere. That results in what may look like efficiency, but it's not good.

As a variation on this, European governments ban commercials for new drugs, because they don't want consumers to learn about them and therefore expect the treatment. That means less money will be spent -- yet it's purely a bad thing and people are denied relief that Americans might take for granted. It's also the only case I can think of where some people have convinced themselves that consumers should NOT be informed, as opposed to being informed.

But I'll concede I haven't done enough research to convincingly support my suspicions.

Posted by: Kevin at September 27, 2006 05:04 PM

Kevin,

A major reason we spend more and get worse results is that our health care system is geared to critical disease care, not to preventitive medicine. Because nations with universal health care provide easy access to it, there are fewer serious health problems to begin with. Our health care system is only best in the world when it comes to dealing with health once it is a crisis; in all other measures we fail.

Also, universal health care administration is more efficient. In a paper I wrote 3 years ago, I found that U.S. health care administration eats up 16-26 cents of every dollar spent. Single-payer systems in other countries have administrative overhead of 3-6 cents of every dollar. That - and a couple other issues - were enough to make me cut up my Libertarian Party card. Sometimes, government isn't bad; sometimes it's even more efficient that a private market.

Posted by: Brandon W at September 28, 2006 11:20 AM

I'm not sure that health care job growth contributes to the economy and well being of the average person but it does help a lot of individual people in and out of the industry. By having job growth in health care many people who would be doing other jobs are doing health care. These puts some relief on job seekers across the board because they have less people to compete with for the same jobs that were there 5 years ago.

A similar thing has been happening in Michigan. As the people get laid off by the tens of thousands they realize that they can't find work here. So they leave the state for more prosperous lands elsewhere. This lowers Michigan's unemployment rate and makes things look better than they actually are.

Posted by: Joe at October 1, 2006 01:35 PM

One analogy I like is repairs for your car. If you needed to see a doctorate of mechanical engineering to do simple repairs, it would be cheaper to just drop your car at the dump and buy a new one.

But simple problems people have with health by law the medication can only be allowed by visiting a doctor of medicine, then seeing a doctor of pharmacy to count the pills for you.

Posted by: aa2 at October 4, 2006 03:26 PM

Someone said very well this week: we don't have a healthcare crisis in this country, we have a health crisis in this country. WBR LeoP

Posted by: Meds Man at March 8, 2007 05:18 PM


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