The Impact of Hospitals on Local Labor Markets: Going Beyond IMPLAN

This study examines the impact of hospitals on local labor markets in rural and urban counties. We measure the ability of hospitals, particularly in rural communities, to attract non-health related employment and provide higher wage jobs to residents based on their education level. Results find hospital employees with an associate’s degree can expect a 21.4% wage premium, when compared to alternative opportunities, and those with a bachelor’s degree can earn 12.2% more working in a hospital. Hospitals are shown to be positively related to overall employment as well as exhibit positive employment spill-over. For rural counties, a short-term general hospital is associated with 599 jobs in the county; 60 of which are hospital based and 499 are non-healthcare related. With the positive benefits on wages and non-healthcare job growth, hospitals have measurable positive labor market outcomes above their primary objective of providing health care access, particularly in rural counties. The Impact of Hospitals on Local Labor Markets: Going Beyond IMPLAN In 2011, The Congressional Budget Office predicted that hospitals which qualify for certain federal subsidies will cost the federal government $23 billion over the 2012-2016 period. Under normal market conditions, failing businesses are an indicator that the market does not have a sufficient preference for the good or service given the market price. However, because of moral hazard, adverse selection, and price distortion, hospitals do not function under normal market conditions. Thus, national and local governments have been willing to allocate resources to hospitals that otherwise would be losing money under the justification that hospitals provide numerous positive benefits for the local community. On a national level, hospitals are an important part of the economy. In 2013, hospitals were worth approximately $749.4 billion dollars in economic output. On a local level, hospitals provide a myriad of benefits that range from their primary function of providing medical access for residents, acting as an “export-base industry” through the inflow of federal Medicare and Medicaid payments, and supplying high-skill high-wage employment (Nelson 2009). While the general qualitative benefits of hospitals are intuitively apparent, estimation of these impacts involves some effort to isolate each one. This study examines one aspect of hospitals’ impact on local communities by measuring the relationship between hospitals and local labor markets in rural and urban areas. When considering local labor markets, by far two of the most import factors are wages of local residents and employment opportunities in the community. Our formal research objective is to measure if hospitals, particularly in rural communities, attract non1 These subsides are in the form of higher Medicare payments for struggling hospitals that qualify under the Critical Access Hospital, Medicare-Dependent Hospital, and Sole Community Hospital Programs. 2 Hospitals were worth $749.4 billion in current-cost net stocks of private fixed assets, equipment, structures, and intellectual property products according the Bureau of Economic Analysis in 2013. health related employment, and if hospitals provide higher wage jobs to residents based on their education level. Previous studies have primarily measured the economic impact of hospitals with Input-Output analysis using IMPLAN. However, because of the limitations of IMPLAN, particularly for rural counties (Holmes, et al., 2006), we measure employment and wage outcomes due to the presence of a hospital using two alternative model specifications. First, the differences in wages among health care versus non-health care workers is measured by statistically modeling workers’ earnings conditional on educational attainment for years 2000 and 2010. Secondly, the relationship between hospitals and nonhealth related employment for years 2001-2010 for urban and rural counties is measured using regression analyses. The remainder of this paper is organized as follows. Section II is a review of selected previous work, Section III describes the data and its sources. Section IV explains the empirical methodology and results, followed by a conclusion and summary in Section V. Because we are running separate analyses for employment and wages outcomes, Section III and IV have separate sub-sections for the employment and wage analyses. II. Background and Previous Studies The economic impacts of hospitals in urban versus rural communities are not uniform. While urban communities usually have multiple hospital options within a city that can cater to differing population and health demographics, rural counties generally rely on a single hospital provider. This difference is particularly evident when a rural hospital closure is considered. When there are rumors of an urban hospital closure, the conversation is generally focused on health access for the population currently utilizing that hospital’s services. In contrast, hospital closures in rural communities seem to include an additional serious concern for the closure’s impact on the future of local economic development. Low population counties have long been second to their urban counterparts in terms of job growth-linked income gains (McGranahan and Beale, 2002). While rural counties have the benefits of a lower cost of living and inexpensive land, it is difficult to compete with larger cities in terms of business support amenities, agglomeration, and access to a large pool of high skill labor. One major aid in rural economic development is the health sector. Generally, health jobs are second only to the education sector in terms of total employment for rural counties. Additionally, the health sector does not provide just average jobs, but high-wage high-skill jobs. This helps build a strong tax base and stimulates other local businesses when those wages are spent locally (Doeksen, Cordes and