Regime-dependent health care employment dynamics in recessions

Abstract

We relax the assumption that recessions are all alike in studying whether U.S. health care employment is recession-proof. Because health care services are inelastic and largely driven by costs, we argue that economic conditions influence health care employment only to the extent that they significantly affect health care wage growth. Using U.S. monthly data for 1990–2022, we estimate a threshold vector autoregression that allows for regime-dependent negative demand and negative supply shocks in examining the response of health care employment growth in recessionary periods. When wage growth is high as determined by an endogenously-estimated threshold, we find a large and significant reduction in health care employment growth during demand-induced recessions and a smaller decline during supply-induced recessions. Meanwhile, health care employment growth does not respond significantly to negative demand or supply shocks in the low-cost regime. Further, a disaggregated analysis evidences large heterogeneity across sub-sectors. In this way, our findings reveal that both the source of the shock and health care wage growth are important in explaining health care employment dynamics. Thus, health care organizations that are more labor cost efficient will be more insulated from economic disruptions.