Healthcare Insights: The High Growth of Low Wages in Healthcare

Labor markets in healthcare are in turmoil. 

As I was preparing to write this month’s article about the systemic causes of the recent nurses' strikes in New York City and across California, I received a call from a financial reporter from a major news organization. Her question was, “what does it mean for the economy that nearly all of the job growth is in healthcare, especially in the low-pay jobs in home health care and in nursing home care for the frail and elderly?"

Earlier this month I saw the following New York Times headline:

“Health Care Has Become the Lifeblood of the Labor Market”

The article states that: 

“It is an exceptionally difficult time to find a job in America, as employers work through a hiring hangover from the pandemic and hesitate to invest in new staff with policy changes coming fast and furious from Washington.

But the picture is even worse without one sector: health care. 

“The industry, and related professions in the social assistance category, added 693,000 last year. Without it, the economy would have lost 570,000 jobs, as business and professional services, retail, the federal government and manufacturing all contracted.” 

NBC News has reported that an aging population is drawing workers to medical and social care, creating reliable jobs and revealing weakness for the rest of the economy. 

The report notes that while the U.S. added 130,000 jobs in January a closer look shows that the lion's share of this growth came from one specific task: caring for older Americans - which is under the formal categories of "social assistance" and "healthcare," at-home care services, hospitals and long-term care facilities added 124,000 positions.

They found that nationwide, nearly 4 million people, most of them women, work as home health or personal care aides, per the BLS. Another roughly 1.5 million work as nursing assistants.

And that pay for many of these roles remains modest. Home health and personal care aides earn a median of about $16.82 an hour, or roughly $35,000 a year. By comparison, the federal poverty level for a family of four is $32,150. Even worse, these very  low wages have actually been falling when adjusted for inflation:

The growth of the need for these low-paying jobs is hardly news: In 2021, it was projected that from 2020-2030, job growth of home aides would be 1.129 million with an average salary of $27,080 (2021 average). 

The data cited here has many implications, two of which include: 1.) what does it mean broadly that the largest job growth is in some of the nation’s lowest paying jobs? and 2.) what are the implications of such a low-wage labor market that is central to the care of the growing population which needs that care?

For decades, wages have trailed the cost of living which means that adjusted for inflation wages have remained flat. Today, the term “affordability” has become a central feature of political debate and public policy. However, there is another set of data that goes beyond affordability alone: “Today’s affordability debate, however, focuses almost entirely on prices, as if the only way to make life affordable is to make things cheaper. But that approach misses the bigger picture. Affordability depends on both prices and wages. The roots of today’s affordability crisis actually lie not in recent price spikes, but in the long-term suppression of workers’ pay. 

The decades-long suppression of wages for home health aides is well established. As such, as jobs outside of healthcare shrink and home health aides and nursing assistants’ jobs increase at low wages, the dominant and low-wage trajectory for work in the nation accelerates.

In my view another set of challenges include the implications of low-wage workers tasked with caring for an increasingly large and frail population. It is well established  that the numbers of people in need of home healthcare has been accelerating for a long time.  

To understand these challenges, it is best to first define our long-term care system. “There are two systems of long-term care: unpaid family and friends and paid home care aides.  The family and friend’s system are by far the largest, but it places significant strain on caregivers, and as a nation we do very little to support them. (Who Will Care for Us?) Paul Osterman, Russell Sage Foundation, New York, 2017, pp. 140-141).  

The number of people who will need care by the year 2030 is staggering: 47 million, and the projected number of paid direct care workers needed is 4.1 million. The balance will be cared for by unpaid family and friends. As Professor Osterman illustrates: “Our system for providing care in this country is complicated and often impossible to understand  - impossible for consumers who need the care, impossible for the providers, and impossible for the policymakers and payers”.

To summarize the above simply is to recognize that there is a gigantic and growing segment of our population that requires long term care, and the workforce that provides this care is either unpaid or paid so low as to live in poverty.  

And, these jobs are the fastest growing jobs in the country!

What does the future hold?

This crisis ought to be seen as yet another opportunity to confront the broken healthcare system of  our nation. We have known for a long time that major steps must still be taken to once and for all ensure that everyone has access to high quality care (acute, primary, pediatric, long term, behavioral, dental, hearing, and end-of-life care.) We know we are already spending 18% of GDP WITHOUT this guarantee!

I have reported in previous articles that somewhere between 25-50% of what we already spend is wasted:  a failure of care coordination, failure of providing the right care at the right time, over-treatment, profit, fraud and abuse, and administrative burden. The GDP figure is always a “hard pill to swallow” since it includes all the waste and misalignment of care.

And we have seen this movie before about how low and stagnant wages ruins the standard of living of the nation:

Notable in the above graphic is the relationship of unionization rate and productivity rate which shows how wages paralleled productivity gains until such time as unionization rates started to fall at the same time that wages began to flatten out, while productivity gains continued skyward.

Today, there is less unionization than any time since the period prior to the enactment of the National Labor Relations Act in 1935. The outlook for wage gains looks bleak as productivity continues to rise. 

If we consider that job growth today is largely centered in low paying health care jobs, the outlook for wages for American workers looks exceedingly bleak.

What can we learn from this state of long-term care from this low-wage history and what ought to happen?

It is time for labor, industry, and government to confront these interrelated crises of low wages and woefully insufficient care for our huge aging and frail population. It is time for this tri-partite dialogue to transform care delivery while raising the wages of what can and must become a workforce that contributes high value, better care, and cost savings.  

While overall unionization rates are low, there are many states where healthcare unionization rates are high: California, Hawaii, Oregon, Washington, Nevada, Minnesota, Illinois, New York, New Jersey, Pennsylvania, Connecticut, Massachusetts, and Rhode Island. Such tri-partite dialogue has existed in these states in the past, and could easily accelerate.  

We know that the path to more accessible, higher quality healthcare requires fundamental change in how care is delivered. We must move from a system of fee-for-service to a system based on prevention. While there are many efforts that are going on to align changes in infrastructure, education and training of staff, and integration of services, there remains a huge gap between cost of such transformation and financial incentives to start and sustain such changes.

One of many great examples of successful transformation to align infrastructure, investments, and incentives to achieve better outcomes for patients while lowering cost was the grand effort in New York State Medicaid Reform, know as the Delivery System Reform Incentive Program (DSRIP) which was in effect from 2015-2020. 

The primary goal was to reduce unnecessary hospitalizations among the Medicaid population of more than 6 million people by 25% and to prevent or curtail illness and injury by aligning the right organization of care delivery, enhance the workforce’s ability to accomplish these transformative changes, and build financial incentives to fuel the strategies for improvement. This goal was accomplished through a Medicaid Waiver program which authorized the State to invest $8 billion in Medicaid funds into fully integrated health systems around the state. The results were achieved, and $17 billion in Medicaid funds were saved.

In the process many jobs were created or changed to align with new preventive systems of care delivery. Much of the success was achieved by the prevention of transfers of patients from nursing homes and home care to hospitals, a feat achieved through training and empowerment of nursing assistants, community health workers, and home care workers along with collaboration of institutional leadership in hospitals, emergency rooms, nursing homes pharmacies, and more. 

Wages improved modestly through collective bargaining.

What remains missing in this type of integration of care to reduce waste and improve outcomes is to apply these structures across all sectors of payers: Medicare, private, and commercial. If all healthcare spending could be so aligned, quality and productivity gains ought to translate into significant wage improvements, as has been the nation’s previous trajectory to align unionization, productivity, and higher standard of living.

There is no question that the demand for home health care and long-term care is increasing and will continue to grow. The shortages of workers will also continue. These are classic conditions for policy change to improve the working conditions and to expand the role of direct care workers in the care being given.

The crisis in long-term care requires that chronic conditions must be improved; that transition from home to hospitals must be reduced through enhanced communications and information sharing between the caregiver and the care institutions.  

Palliative care is a growing trend in long-term care and with enhanced education and practice, it can be shown to be the more humane and a less costly type of care patients and families need.

Again, Professor Osterman: “We must reconfigure the system so that the incentives shift and point to better outcomes for the workforce”. 

Cornell’s Ariel Avgar is heading up an initiative with a grant from the Robert Wood Johnson Foundation which will add much needed updated data and information on how to enhance the role of home care workers: “This specific study will allow us not only to understand how home care workers contribute to patient care, but we'll be able to look at some variation across northern states and southern states and get a better sense of what levers of power they can use in advancing their own needs and the needs of their patients.“ 

This type of study will focus on how the enhanced voice of home care workers, usually through having a union can contribute directly to the changes that must take place if long-term care is to improve. The workers’ wages and working conditions ought to improve when they are the source of increasing value for the enormous funds spent on long-term care.

While the current state of long-term care in the country is woefully inadequate and the workforce at the heart of the care suffers from low wages and very difficult working conditions, there is a clear imperative for fundamental change. Since Medicaid is the primary funding source for most financing of long-term care, there is a clear role for policy making in states where labor, community, and industry must work collaboratively toward solutions.  Investments in new forms of coordinated and integrated care are necessary.  

“The coming explosion of demand, driven by demographics will put these issues on the political map”, says Professor Osterman.

Indeed, the recent news reports of job losses in virtually all industries compared with explosive growth in one of the lowest paying jobs in the economy can light the way forward in what has been a dark tunnel of defeatism regarding a problem that impacts most American families. 

There are so many crises in healthcare that it is insufficient to call them an “inflection point” (an over-used term, in my view). From low wages and resultant neglect of our elderly and frail; to nurse staffing shortages, and health care workforce shortages more broadly; to unsustainable cost with low value in return, and unimpeded growth of an aging and sicker population, the time has come for labor, industry, and management to find a collaborative path. 

I have heard from labor and management too often that collaboration cannot come until we work in a “better system.”

I ask, which is the chicken or the egg? Can we have collaboration to foment the birth of a new system, or must we wait for the new system to miraculously come into being?

The need and opportunity have never been greater for the tri-partite dialogue to expand and succeed, now.

John August is the Scheinman Institute’s Director of Healthcare and Partner Programs. His expertise in healthcare and labor relations spans 40 years. John previously served as the Executive Director of the Coalition of Kaiser Permanente Unions from April 2006 until July 2013. With revenues of 88 billion dollars and over 300,000 employees, Kaiser is one of the largest healthcare plans in the US. While serving as Executive Director of the Coalition, John was the co-chair of the Labor-Management Partnership at Kaiser Permanente, the largest, most complex, and most successful labor-management partnership in U.S. history. He also led the Coalition as chief negotiator in three successful rounds of National Bargaining in 2008, 2010, and 2012 on behalf of 100,000 members of the Coalition.