Medical employment growth, unemployment, and the opportunity cost of health care
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Medical employment growth, unemployment, and the opportunity cost of health care Mark Pauly1 · Vivek Nimgaonkar2
Received: 21 October 2015 / Accepted: 25 August 2016 © Springer Science+Business Media New York 2016
Abstract This policy note examines the relationship between the growth in the share of the workforce in medical care and the shares of workers who are unemployed, working in services or government employment, or working elsewhere in the economy. These changes provide measures of the opportunity cost of higher medical care spending, the majority of which is on labor. Using state data over the period 1990–2010, we find that, in years of high economy-wide unemployment, growth in medical employment in a state reduces the unemployment rate significantly; it does not appear to displace employment in other services or government employment. In periods of low economy wide-unemployment, the growth in the medical employment share does not reduce unemployment. We argue that the opportunity cost of higher medical care employment may sometimes not be so high in terms of real labor resources, nor in terms of employment for needed government services. Keywords Health care · Costs of health care · Analysis of labor markets · Medical economics · Medical employment JEL Classification I1
1 Introduction In the face of bad economy-wide news during the recession, one bright spot, according to some commentators, was the health care industry. Spending there continued to grow, even in the face of declining GDP. However, commentary on medical spending growth did not celebrate its positive contribution, but instead found hope in the fact that the growth rate at
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Mark Pauly [email protected]
1
Health Care Management Department, The Wharton School, University of Pennsylvania, 208 Colonial Penn Center 3641 Locust Walk, Philadelphia, PA 19104-6218, USA
2
Vagelos Life Sciences and Management Program, The Wharton School, University of Pennsylvania, 208 Colonial Penn Center 3641 Locust Walk, Philadelphia, PA 19104-6218, USA
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M. Pauly, V. Nimgaonkar
least was lower than the “new normal” in the historical trends of health care spending. While slowdown in revenue growth in other industries was an object of macroeconomic concern, in this industry slower growth was to be cheered, not lamented. The ostensible reason mentioned was that slower medical spending growth would mean less of a fiscal drain on public and private budgets. This view reflected a policy objective of reducing the growth of medical spending at least to the long run growth rate of GDP—and even lower for Medicare. Why the different attitude toward medical spending growth? This issue is still germane for policy, because medical employment over the last year has resumed a high rate of growth in excess of employment in general (Altarum Institute 2015). There are many arguments for medical cost containment, most of them focusing on the budgetary problems of rising prices and premiums. However, one potential downside to slower growth in spending would be slowe
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