Compositional Changes in Work Force Health Status: Evidence from the Great Recession

The Great Recession from December 2007 to June 2009 resulted in massive reorganization of the workforce. At its peak in October 2008 to March 2009 over 700,000 positions were eliminated per month. Interestingly, worker productivity rose during the recession, suggesting employees may have improved their productivity or the decline in the workforce improved average worker quality. This would imply that employees with below average productivity may have been disproportionately separated from their employment. One factor potentially contributing to changes in productivity could be tied to the health status of the workforce.

In this study, we investigate the health status distribution of employees before, during, and after the Great Recession using claims data for over 20 million individuals, primarily insured through a commercial insurer. Two potential mechanisms can explain improvements in productivity during the recession. First, the decline in the workforce led to an on average healthier workforce. This would indicate the more productive workers, who remained employed, were healthier relative to the less productive workers who lost their jobs. Alternatively, the opposite may be true: the decline in workforce led to a less healthy workforce. In this scenario, workers with higher healthcare costs remain employed while the healthier workers disproportionately lost their job. The worsening of average health status among workers could have been due to less healthy workers being more productive during the recession because they’re more likely to be older and more experienced on the job. The worsening job market could have also incentivized the less healthy workers to improve productivity and stay employed because they place a higher value on retaining employer sponsored health coverage.

Our study provides the first large scale analysis of the trends in employee health profiles during the 2007-2009 Great Recession. We indirectly identify changes in employment by utilizing panel data on employers offering health insurance between 2006 and 2010, and evaluate how changes in employee healthcare utilization and expenses may have contributed to the rising productivity.