Hospitals Experienced Labor Rebound In August, Reports Say

Dive Brief:

• Jobs data released from the U.S. Bureau of Labor Statistics on Friday indicate hospitals experienced a reprieve from costly labor shortages during August, as talent became more readily available and slightly more affordable to bring on.  
• The healthcare industry added jobs at a faster rate than other industries last month, with hospitals gaining 10,000 jobs, according to BLS data. A separate report from Fitch Ratings said labor was also improving for nonprofit hospitals, with payroll levels surpassing pre-pandemic levels by almost 7%. 
• Critically, the cost to bring talent aboard is now growing at a more sustainable pace compared to last year. Healthcare workers’ wages grew 3.4% year over year as of July, which is back on par with inflation and wage growth in other industries, according to a research note published by Jefferies on Monday.

Dive Insight:

Analysts were enthusiastic about the labor outlook for the healthcare industry post-jobs report — welcome news after providers have spent years puzzling how to handle widespread worker burnout and attrition fueled by the COVID-19 pandemic.

A broad array of metrics are coalescing to paint an optimistic view of healthcare jobs, including decreased quit rates and job openings relative to January.

Across the sector, employment increased by 4.6% year over year from August 2023 to August 2024. Although the industry added jobs at a slower pace in August compared with previous months, some of that variance is explained by a corresponding drop in job openings.

Job postings fell “significantly,” in August, according to analysts from Jefferies, on an “improvement in labor supply, a reduction in the utilization of temporary workers, and diminished friction in integrating new hires.”

Wage growth increased moderately across the sector between June and July, according to a Jefferies note, which cited BLS data. However, it remains below peak levels and is on track with other industries.

Reduction in wage growth volatility is a win for healthcare providers, according to Jefferies. Predictability around wage growth should allow for better cost management and strategic planning.

In the nonprofit sector, metrics are likewise trending favorably.

Richard Park, director at Fitch, who pulls together the monthly nonprofit labor tracker, said that the employment picture this month is a far cry from when he first developed the labor tracker last year. Back then, he said every indicator on the dashboard was “flashing red” for nonprofit hospitals.

Now, payroll levels have rebounded to above pre-pandemic levels and wage growth rates are more sustainable, according to Park. 

Nonprofit hospital payrolls rose for the 32nd consecutive month in August, with the sector adding an average of 18,650 jobs per month over the past year. Job openings and quits have also been on a steady decline, according to Park.

Nonprofit hospital workers’ average hourly earnings growth declined from an average of 4.2% in 2023 to 3% this year, according to Fitch’s September labor tracker.

That’s a “sustainable” level of growth, according to Kevin Holloran, senior director and the sector leader of not-for-profit healthcare in the public finance department at Fitch. 

Holloran described current wage growth rate for nonprofits as “about as good as it’s going to get,” noting that the industry was likely never going to get back to paying pre-pandemic salary, wage and benefit expense levels.  

“Everyone has reset a little bit higher than they used to be,” Holloran said.

Both nonprofit and for-profit providers’ ability to onboard talent, as demonstrated by increased payroll numbers and their use of contract labor, is good news, according to both Holloran and Jefferies.

Not only do temporary workers cost providers more on average to retain, they also can ding providers’ quality, according to Holloran. He said that workers who only serve short stints may not understand the norms of a facility or build connections with coworkers. 

As Holloran put it, when providers can insource, “quality goes up, and culture improves.”

In a separate research note from Jefferies, published last week, the firm said there has been a “noticeable slowdown” in provider demand for travel nurses.

The decrease in temporary contract utilization, coupled with the BLS data, suggests “a positive shift in the labor market dynamics for [healthcare] providers, offering improved operational capacity,” according to Jefferies.

As the cost of labor decelerates, Park predicts that nonprofit providers can expect to see gradual improvements in operating income toward the back half of the year. 

However, he and Holloran stressed that across healthcare, providers can’t fully take their eye off of labor. While some perks to retain talent might go away in the short term — such as spot bonuses for retention — the analysts predicted providers would continue to invest in their education programs for nurses and physicians.

The labor picture may be better now, but a “Silver Tsunami” is coming at the end of the decade when the Baby Boomers reach retirement age and need more care, Holloran said. For-profit and nonprofit providers will have to remain vigilant about maintaining their labor supply.