Are Physicians Recession Proof?

Economic cycles are inevitable but difficult to predict, and sharp downturns can generate hardship for existing workers as well as those just entering the workforce – with much recent research focused on the latter group (i.e., new entrants). An extensive literature now documents immediate and persistent adverse labor market outcomes for individuals graduating into an economic downturn; however, the effects are heterogeneous, whereby certain individuals are partially shielded against the economic harms. That said, the most recent economic downturn (i.e., the “Great Recession”) has been harsher than prior recessions, with the pain more evenly spread across backgrounds and skill sets.

Recessions are also known to correlate with health behaviors and health outcomes. A complementary set of studies finds near- and long-term health implications for those living through a recession period and also those entering the labor force during a dip in the business cycle. Beyond health status, with employment and health insurance coupled for much of the under-65 US population, a worsening economic climate has unsurprisingly been shown to increase the rate of uninsurance and decrease health care consumption.

This combination of factors (i.e., adverse effects across a wider range of occupations as well as disruptions for health care consumers) bodes poorly for the medical profession. Physicians occupy a service industry whereby their incomes and employment opportunities are tied to the demand for medical care. Consequently, a recession-induced drop in demand could financially penalize physicians and tighten their specific labor market – perhaps most among those joining the workforce for the first time. On the other hand, physicians reside in one of the most highly skilled and highly regulated occupations, which could attenuate any adverse effects. These counterbalancing considerations leave open the question as to if and how recessions affect physician labor markets, and to our knowledge, there have been no attempts to empirically answer this question to date.

In this paper, we leverage unique data on physicians completing their clinical training and entering the formal job market for the first time. We are able to observe new graduate cohorts before, during, and after the Great Recession to examine changes in strategic entry decisions, human capital accumulation, and a host of labor market outcomes attributable to the economic downturn. We subsequently find that physicians do not delay labor market entry or alter their practice choices in response to the business cycle, and there is only slight indications of wage compression among certain specialties in the midst of a worse economy. The collage of evidence demonstrates that new graduates were largely unphased by the Great Recession when seeking their first job. This contrasts with other highly skilled, highly educated occupations (including those in health care). We interpret this as the result of a heavily supply constrained industry, and the persistent excess demand for medical education is rational so long as individuals value employment certainty, above average earnings, and de facto insurance against business cycle fluctuations.