Business cycles and healthcare employment

Abstract

Is healthcare employment recession‐proof? We examine the long‐standing hypothesis that healthcare employment is stable across the business cycle. We explicitly distinguish between negative aggregate demand and supply shocks in studying how healthcare employment responds to recessions, and show that this response depends largely on the type of the exogenous shock triggering the recession. First, aggregate healthcare employment responds procyclically during demand‐induced recessions but remains stable during supply‐induced recessions. Second, healthcare utilization drops significantly during demand‐induced recessions, explaining the decline in healthcare employment during these periods. Finally, there is significant heterogeneity in the employment responses of the healthcare sub‐sectors. While healthcare employment in most sub‐sectors responds procyclically during recessions caused by both negative demand and supply shocks, it responds countercyclically in nursing‐dominant sectors. Importantly, by isolating the recessionary impact of negative aggregate demand shocks from supply shocks on healthcare employment, we provide new empirical evidence that healthcare employment, in general, is not recession‐proof.