Business Cycles and Healthcare Employment

Abstract

Is healthcare employment recession proof? We examine the hypothesis that
healthcare employment is stable across the business cycle. We explicitly distinguish
between a negative aggregate demand and supply shock 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 aggregate
healthcare employment responds procyclically during demand-induced recessions
but remains stable during supply-induced recessions. Further, 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, that in nursing dominant
sectors responds countercyclically. However, the procyclical response of sub-sectors
and countercyclical response of nursing dominant sectors are both relatively weaker
during recessions caused by a negative aggregate supply shock than a demand shock,
thus balancing out and contributing to an overall null employment response of the
aggregate healthcare sector during recessions caused by a supply shock. More
generally, by isolating the recessionary impact of the negative aggregate demand
shock from supply shock on healthcare employment, we provide new empirical
evidence that healthcare employment in general is not recession proof.

Keywords: Business Cycles, Healthcare Employment, Demand Shock, Supply Shock, FAVAR

JEL Classification: C32, E32, J22, J23, I11