Does Health Care Protect Regions from Economic Downturns?

There has been a lot of discussion of the impact of the health care industry on local economies. Employment recovery after economic downturns has been partially attributed to having large shares of a region’s employment in health care. We investigate whether health care softened the impact of economic shocks in the U.S. during the Great Recession of 2007 – 2009. Our theoretical model of regional economies with subsidized health care sectors predicts that having a greater health care share of employment attenuates the effect of an income shock from a housing crisis on labor demand changes. Using data from the Census Bureau, we estimate an econometric model of regional economies which allows for the possibility that having a larger share of employment in health care softens the employment impact of negative economic shocks. We find having a greater health care sector had a small attenuating effect on the housing crisis's impact on employment changes. However, we cannot empirically confirm other side predictions from our model, casting some doubt on our main findings and our model.