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Dive Overview:
Employment data released Friday by the U.S. Bureau of Labor Statistics showed hospitals were able to take a breather from costly labor shortages in August as talent became more readily available and slightly less expensive to hire. The health care industry added jobs at a faster pace than other industries last month, with hospitals adding 10,000 jobs, according to data from the Bureau of Labor Statistics. Nonprofit hospital labor is also improving, with pay rates nearly 7% above pre-pandemic levels, according to a separate report from Fitch Ratings. Importantly, the cost of recruiting talent is growing at a more sustainable pace compared to last year. Wages for health care workers increased 3.4% year-over-year as of July, back on par with inflation and wage growth in other industries, according to a research note released Monday by Jefferies.
Dive Insights:
Analysts were enthusiastic about the report on the health care industry’s employment outlook, which is good news considering health care providers have been grappling for years with how to address the epidemic of worker burnout and turnover caused by the COVID-19 pandemic.
A confluence of indicators, including lower turnover rates and job openings compared to January, paints a more optimistic picture for health care worker employment.
Across the industry, employment grew 4.6% year-over-year from August 2023 to August 2024. The industry saw a slower pace of employment growth in August compared to the previous month, but part of the difference is explained by a corresponding decline in job openings.
According to analysts at Jefferies, job postings fell “significantly” in August due to “improved labor supply, reduced utilization of contingent workers and reduced friction in retaining new hires.”
Wage growth increased modestly across industries from June to July, but remains below peak levels and in line with other industries, Jefferies said in a note, citing BLS data.
Less volatility in wage growth would be an advantage for health care providers, according to Jefferies, as predictability in wage increases should allow for better cost management and strategic planning.
In the nonprofit sector, the indicators show similarly favorable trends.
Richard Park, a director at Fitch who compiles the monthly labor tracker for nonprofit hospitals, said this month’s employment picture is very different from when he first developed the labor tracker last year, when all of the metrics for nonprofit hospitals on the dashboard were “red flags.”
Park said salary levels have now recovered above pre-pandemic levels and wage growth is becoming more sustainable.
Nonprofit hospital payrolls rose for the 32nd consecutive month in August, and the sector added an average of 18,650 jobs per month over the past year. Park said job openings and departures have also been steadily declining.
Average hourly wage growth for nonprofit hospital employees fell to 3% this year from an average of 4.2% in 2023, according to Fitch’s September Labor Tracker.
That’s a “sustainable” level of growth, according to Kevin Holloran, senior director of Fitch’s public finance practice and leader of its nonprofit health care sector.
Holloran described current wage increases at nonprofits as “as good as it gets,” noting that the industry will likely never return to pre-pandemic levels of salaries, wages and benefit costs.
“Everybody’s reset to a level a little bit higher than they were before,” Holloran said.
The good news, according to Holloran and Jeffries, is the ability of both nonprofit and for-profit providers to recruit top talent, as seen in increased salary levels and the use of contract workers.
Not only are temporary workers more expensive to retain on average, but they can also undermine the quality of temporary employment agencies. HolloranHe said workers who are only there for a short time may not understand the norms of a facility or form connections with coworkers.
As Holloran That is, the provider Insourced“The quality goes up and the culture goes up.”
In a separate research note published by Jefferies last week, the firm said it was seeing a “significant slowdown” in demand for agency nurses.
According to Jefferies, the decline in the use of temporary contracts, combined with the BLS data, “suggests positive shifts in labor market trends and improved capacity for (healthcare) providers.”
Park expects the nonprofit’s operating profits to gradually improve over the second half of the year as labor cost increases slow.
But he and Holloran stressed that across the industry, health care providers can’t take their eyes off labor entirely. While some perks to retain talent (such as spot bonuses for retention) may go away in the short term, health care providers will likely continue to invest in educational programs for nurses and doctors, the analysts predicted.
The workforce situation may be improving now, but Holloran says there’s a “silver tsunami” coming in a decade as baby boomers reach retirement age and need more care, and for-profit and nonprofit care providers will need to remain vigilant about maintaining the workforce supply.
