Health Care: The Economy's Lifeline


The continued growth of jobs in health care appears to be the lone saving grace in an otherwise brutal employment picture

Call this revenge of the health-care economy. For years politicians and economists have denounced health spending for being out of control.

But now health-care hiring is one of the few things keeping the economy from collapsing completely. The federal employment report released Nov. 7 shows that the private health-care industry added 26,000 jobs in October, while the rest of the private sector lost 289,000 jobs. Over the past year the pattern is even starker—health-care employment rose by about 350,000 while the rest of private-sector employment plunged by a stunning 1.7 million.

These health-care organizations, such as hospitals and physicians' offices, are paying, on average, a lot more than the minimum wage. The average compensation per full-time equivalent worker in health care was $57,000 in 2007, about equal to the average pay for all private-sector jobs. Indeed, total payrolls in health care actually exceed compensation in finance and insurance, despite the higher pay in those industries.

What's more, the hiring in health care should continue. For one, this is a continuation of a long-term pattern. Over the past eight years, the private sector has generated 3 million new jobs, and 2.5 million of those have come from health care. The reason: The population is aging, and there's no way to outsource most health-care jobs. By comparison, employment in finance and insurance is up only 400,000 over the last eight years, despite the boom, because many of the back-office and IT jobs were created overseas.

Upward Trend Well Into 2009

In addition, health-care spending is a natural channel for fiscal stimulus. About half of the funding for health care comes from the government, through programs such as Medicare and Medicaid. While states may be hard-pressed to come up with their share of Medicaid money, there's a good chance the federal government will step in to make sure the money keeps flowing.

So far, demand for health-care jobs has been holding up. According to the Monster (MNST) employment index—which monitors online recruitment activity, not only at Monster but at other online sites—the online demand for health-care occupations is roughly even with where it was a year ago, while the demand for almost every other occupation is way down. At MedZilla, a specialized online job site for biotech, pharmaceutical, and health care, there was a decline in open positions from early 2008 to August. However, "that number started to rise in September and is continuing to increase aggressively," says Michelle Hopps, marketing director for MedZilla. "From what I can tell from our internal data, that upward trend so far appears to extend out through the end of this year and well into 2009."

And many health-care organizations are still growing. Consider the Lahey Clinic, a large, well-respected group practice based in Burlington, Mass., north of Boston. Lahey employs about 5,300 workers—which includes physicians, nurses, technicians, and other support personnel—up about 3.5% over the past year. And Lahey expects to expand further, since it is opening a new building in spring 2009 in Peabody, Mass. "We're working on staffing plans right now," says Joan Robbio, chief human resources officer for Lahey. In fact, one of Robbio's biggest concerns is finding enough workers to meet Lahey's standards. She notes, in particular, that the "market is very tight for experienced nurses."

A Floor for Employment

Regionally, there are some states where expansion in health care is making a big difference, at least so far. For example, New York had a gain of 11,000 private jobs in the year ending in September 2008—but a 17,000 gain in health care. Massachusetts shows a similar pattern. Other states where the expansion in health care is either keeping the local labor market afloat, or stopping a decline from turning into a rout, include Virginia, Pennsylvania, Ohio, North Carolina, New Jersey, and Illinois.

Of course, health-care hiring is not going to stop the economy from falling into recession. But health care is part of a group of industries—such as social assistance, education, and government—that are less sensitive to business cycles. These industries, which make up about 30% of the workforce, will provide a floor for employment and spending, which may turn out to be critically necessary in the months to come.

Mandel is chief economist for BusinessWeek.

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