Business Cycles and Healthcare Employment

Is healthcare employment recession proof? We examine the 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. We find that healthcare employment responds procyclically to demand-induced recessions; and the reduction is driven by layoffs and discharges rather than voluntary quits. In evaluating additional mechanisms, we find evidence of a reduction in real personal healthcare expenditures resulting from an adverse demand shock. By contrast, we find that healthcare employment is fairly stable and even responds countercyclically to supply-induced recessions, suggesting compositional changes such as downskilling particularly in nursing sectors. Our findings establish that employment responses during economic downturns are heterogeneous across healthcare sub-sectors. More generally, by isolating the impact of the structural demand shock from supply shock on healthcare employment, we provide new empirical evidence that healthcare employment is not recession proof