What Explains the Disconnect Between Employment Growth and Wages in Healthcare?

November 16, 2017

This is the fifth in a series of blog posts based on the CEPR report, Organizational Restructuring in U.S. Healthcare Systems: Implications for Jobs, Wages, and Inequality, that examines the experiences of healthcare workers over a decade of change from 2005 to 2015.

This post examines the disconnect between the growth in employment of two healthcare occupational categories – medical technician and health aides and assistants – over the decade from 2005 to 2015, and the stagnation or decline in real wages these workers earned. We smooth out year-to-year changes in real wages by using a three-year moving average. For consistency, we also report the three-year moving average for employment.[1]

Between 2007 and 2015, the three-year moving average of total employment increased by about 16 percent in the healthcare industry, which includes five major segments – hospitals, outpatient care centers, physicians’ offices, home healthcare services, and nursing homes. These five healthcare segments account for about three-quarters of all healthcare jobs. Hospitals are the largest employer by far, but employment in this segment grew by just half of the overall growth rate of healthcare jobs. Employment in the much smaller outpatient care center segment grew five times faster than it did in hospitals. Employment in the two largest non-professional patient care occupational categories – medical technicians (mainly allied health technicians and licensed practical/vocational nurses) and health aides and assistants grew at about the same rate as overall employment in healthcare and hospitals. However, outpatient care centers saw even more rapid growth of medical technicians than of overall employment – a more than 60 percent increase for med techs compared with the almost 50 percent increase in overall employment in this healthcare segment.

Trend in Employment for Healthcare Workers, 2007-2015

(To see additional plots on mobile, tap and hold on plot then scroll)

While jobs in healthcare grew at a steady clip, median real wages followed a more complex pattern. They rose for healthcare workers in the years immediately following passage of the Affordable Care Act and then fell in the years 2013 to 2015. This contrasts with the increase in real wages of full-time workers in the middle or bottom of the income distribution since 2013. For medical technicians and health aides and assistants, real wages in 2013-2015 were back to their 2005-2007 levels or even lower.

Trend in Median Real Wage for Full-Time, Full-Year Healthcare Workers, 2007-2015

(To see additional plots on mobile, tap and hold on plot then scroll)

Despite more rapid growth in employment in outpatient facilities than in hospitals, median real wages of non-professional patient care workers were lower in outpatient care than in hospitals.

Real wages of non-professional healthcare workers could have fallen for a number of reasons: a drop in educational attainment, an increase in the share of the foreign-born or part-time workers, or a change in the age distribution of the workforce are all plausible reasons for declines in real wages. However, none of these factors explains the decline in real wages in healthcare. Educational attainment rose for medical technicians and health aides and assistants in healthcare overall and in hospitals and outpatient care centers, with the increase greater in outpatient care facilities than in hospitals. Similarly, the share of the workforce that is foreign-born rose by only one percentage point overall and was lower in the lower-paying outpatient centers than in hospitals. Part-time employment also declined for workers in these occupational categories. Supply-side factors, such as the personal characteristics of these workers, do not explain the pattern of real wage decline. Institutional explanations may be more relevant.

The Bureau of Labor Statistics reports union density for support occupations in hospitals – a category that includes medical technicians and health aides and assistants — remained steady over the 2005-2015 decade, falling slightly from 13.0 percent to 12.6 percent. In outpatient care facilities, however, union density in support occupations fell sharply from 10.0 to 4.5 percent. Unions maintained the number of members in these occupations in outpatient facilities, but the rapid growth in employment in this health care segment meant a steep decline in density. The fall in union density in non-professional support occupations in outpatient services may explain some of the wage decline in outpatient care and the lower wages paid in these facilities than in hospitals.

Another factor holding down workers’ wages may be an increase in the bargaining power of employers. In consolidated healthcare markets characterized by one or a few healthcare systems, employers may be able to exercise monopsony power to gain lower prices for inputs — in this case, lower wages of workers. The increase in hospital mergers and market concentration over the 2005–2015 decade may be part of the explanation for the stagnant or falling real wages experienced by workers in non-professional occupations in healthcare occupations with direct patient contact.

[1] Results differ slightly from those reported in Organizational Restructuring in Healthcare where we compared employment and wages in 2015 with their levels in 2005. Wages are for full-time, full-year workers; employment figures include part-time as well as full-time employees.

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