The Health Care Productivity Problem

Something I’ve often pointed out in the context of American manufacturing and the media is that somewhat paradoxically, in a developed economy highly productive sectors often feature massive job losses.

Of course the converse of this is that skyrocketing employment in the health care sector should make us suspicious that the productivity growth in this field is unimpressive. And indeed Austin Frakt pulls out this terrifying chart from David Cutler’s crackerjack paper on organizational innovation in health care, which shows that the health sector is actually getting less productive:


Estimating output in the health sector is hard, so things may be better than this. But then again, estimating output in the health sector is hard so things may be worse than that. Either way, it’s an enormous problem. The government is responsible for shouldering a huge share of the cost of health care, both through direct expenditures and through tax subsidies, so we’re going to bankrupt ourselves unless we turn this around.