The Healthcare Boom Revisited

THE HEALTHCARE BOOM REVISITED….Michael Mandel, who wrote the Business Week cover story I blogged about yesterday, has a blog of his own. That’s sort of cool, no?

As you may recall, the takeaway from his story was that the American economy is being kept afloat by jobs in the healthcare industry. If you take those jobs away, private sector job growth elsewhere in the economy has been zero for the past five years. I objected that this was “statistical trickery” that could be done during any economic cycle, since if you remove the highest-growth industry you can make any economy look bad. Mandel emails to say that’s not right:

This is a very unusual period where employment gains are so highly concentrated. Let’s look at the previous business cycle, for example. Employment peaked in June 1990. Five years later, private sector employment had grown by 6.5 million.

The single biggest contributor to that growth was health services…but it only accounted for 25% of the private employment gains from 1990 to 1995.

….To put it a different way, private employment grew at a 1.4% annual rate from June 1990 to June 1995. Take out health services, and the annual growth rate of the rest of the private sector fell a bit, to 1.1%. Not that big a difference

Point taken. In the previous cycle, measured five years from the employment peak, the biggest industry (which was healthcare back then too) had contributed a lot of jobs, but not all the jobs. The non-healthcare economy really does look unusually anemic this time around.

On the other hand, it’s also worth looking at a chart Mandel posted elsewhere on his blog. As you can see, it shows very healthy non-healthcare job growth for the past three years. There’s no question that on an apples-to-apples basis (measuring from the employment peak for both the 1990 cycle and the 2001 cycle), overall job growth has been exceptionally weak this time around; and there’s equally no question that healthcare has been the principal standout. On the other hand, since 2003 non-healthcare industries have accounted for about 80% of all new private sector jobs. I’m not sure this really makes the case that healthcare is the main industry keeping our economy afloat.

UPDATE: Mandel breaks down the past year into monthly chunks here. Healthcare’s share of new job creation has averaged about 20% over the past three years, but it’s grown to over 30% since the beginning of 2006. Is this a blip or a trend? We’ll have to wait and see.