• Chart of the Day: Health spending and job growth

    Jared Bernstein shared the chart below, sourcing it to “National Health Expenditures data, BEA, BLS.” You can click over to read his take on it. Mine is much simpler. Perhaps before you read either, you might take a moment to see what story your brain spins from this chart. (This might make a good exam question in a Masters or PhD health economics program.)


    Surprise! There’s no story to tell. It’s just math. What we’re seeing is a demonstration that X and Y-X are negatively correlated. A decrease in job growth (red line) is associated with a decrease in GDP growth (recessions in the early 1980s, 1990s, 2000s, and the BIG ONE circa 2008). Health spending growth is relatively less sensitive to business cycles. That makes the difference between health spending growth and GDP growth bigger (blue line). So, a negative correlation is nearly guaranteed.


    • Since job growth is strongly correlated with the wage growth, we already have a paper which addresses this issue:

      Bates, L. J., & Santerre, R. E. (2012). Does the US Health Care Sector Suffer from Baumol’s Cost Disease? Evidence from the 50 States. Journal of Health Economics.

    • Well, shut down all the hospitals and doctors’ offices, and we will end the recession right now!

      No, I’m not serious.

    • It appears that higher health spending as a percentage of GDP is correlated with lower job growth. This debunks the argument that we should be supporting all of those job-creating hospitals. It shows that health care costs do drain resources from growth-producing economic sectors.

      • Actually LInda, it just shows auto-correlation, which occurs because economic recession leads to both negative job growth and a shrinking GDP. In a ratio such as health spending/GDP, a shrinking of the denominator (GDP) means that the ratio increases. Thus health spending, which as Austin states is relatively inelastic, doesn’t decline much in tandem with employment/income and (mathematically) necessarily increases as a percentage of GDP. So…you may be right that hospitals and health spending in general are a drain on more productive sectors of the economy, but such a position is neither supported nor refuted by this graph.

    • Thank you for the follow-up. It’s hard to think about ratios in correlation to other ratios.