Over the past several decades, the structure of the American labor market has undergone a profound transformation. While manufacturing jobs—once the backbone of the U.S. economy—have gradually diminished, the health care sector has stepped in to fill the void. In recent years, and particularly over the last year, this trend has become increasingly evident. Health care alone has been responsible for roughly one-third of all job growth, even as sectors like retail and manufacturing have seen little to no expansion.

How Health Care Remade the U.S. Economy

This growth in health care employment has been steady and resilient. Even during economic downturns, the number of nurses, doctors, lab technicians, anesthesiologists, and other health professionals has consistently increased. In 2000, health care workers made up around 9% of the American workforce; today, they account for 13%. With the country’s population aging and chronic conditions becoming more prevalent, the demand for health care services is only expected to grow further.

However, this upward trajectory could be disrupted if proposed policy changes are enacted. In particular, the Republican-led tax and spending legislation being considered in Congress could have far-reaching consequences. The Senate version of the bill proposes significant reductions in federal health funding—potentially cutting Medicaid by $1 trillion over the next decade. Additionally, around $82 billion in cuts would target Medicare and subsidies offered through the Affordable Care Act (ACA).

According to Brad Hershbein, a senior economist at the W.E. Upjohn Institute for Employment Research, such sweeping budget reductions could place substantial pressure on hospitals and clinics—especially those that serve low-income communities. While the Senate’s proposal includes a $50 billion fund to assist rural hospitals, it is unlikely to be evenly distributed and may not adequately compensate for the broader Medicaid reductions. Academic medical centers, which have already been strained by cuts to research funding, would also feel the impact. “These institutions are typically very resilient,” Hershbein noted, “but this time could be different.”

Despite frequent political attention given to the loss of manufacturing jobs—historically viewed as stable employment for those without advanced degrees—it is increasingly the health care industry that provides such opportunities today. Wages in health care have grown faster than in other sectors, particularly for middle-skill positions such as nurse practitioners and physician assistants. Meanwhile, compensation for physicians has risen more modestly in percentage terms.

This shift is partially a response to the constraints on medical school enrollment. With limited capacity for training new doctors, state policymakers have expanded the responsibilities of other health care workers who require fewer years of education. These professionals are now authorized to perform tasks like diagnosing conditions and writing prescriptions—duties once reserved for doctors.

Joshua Gottlieb, an economist at the University of Chicago, explains that the labor market adapts when demand outpaces supply. “The economy doesn’t just accept a doctor shortage,” he said. “It creates new types of jobs.”

There are three primary reasons behind the growth in health care employment.

First, more people are receiving health coverage. Since 2000, the percentage of uninsured Americans has dropped from 14% to 8% in 2023. This change is largely due to the ACA, which encouraged states to expand Medicaid, subsidized private insurance plans, and prompted more employers to provide health coverage.

Second, individuals with insurance are using more health services. Chronic diseases like cancer, diabetes, and kidney failure have become more widespread, and the aging population is placing greater demands on the system.

Third, as the American economy has grown wealthier, people have spent less on manufactured goods and more on services—especially health care. Technological advances and globalization have made everyday items like electronics and produce cheaper. But health care—particularly services that require human touch, such as surgeries or long-term care—has not benefited from the same efficiencies. These jobs cannot be outsourced or easily automated.

The expansion of health care employment is visible across the country. In 38 states, health care is now the largest employment sector. Cities that were once heavily reliant on manufacturing, such as Cleveland and Pittsburgh, have pivoted to health care as the cornerstone of their local economies. Even in smaller towns and rural areas, hospitals often serve as the main employers, especially when they cater to surrounding regions.

Some argue that manufacturing holds unique economic value because it produces goods for export. However, health care can also function as an export industry. International patients travel to the U.S. for advanced medical procedures. Foreign students enroll in American medical schools. Pharmaceuticals developed through U.S.-based clinical trials are sold around the world.

It’s also worth noting that this workforce shift is not unique to the United States. As nations become wealthier and their populations age, they tend to devote more of their labor force to health care. In fact, nine members of the Organization for Economic Cooperation and Development (OECD)—including several northern European countries and Japan—employ a greater share of their workforce in health care than the United States does.

The COVID-19 pandemic intensified the demand for health care workers. Many left the profession due to burnout and unsafe working conditions. As a result, the sector is still playing catch-up, with job openings remaining high compared to other industries. Nursing schools continue to graduate as many students as possible to fill the ongoing labor gap.

Robert Rosseter, a spokesperson for the American Association of Colleges of Nursing, emphasized that the shortage is ongoing. “There’s never been a year where we could say, ‘We’ve trained enough nurses,’” he said.

Simultaneously, new demands are emerging. The rise of telehealth and increased attention to mental health—spurred by changes in insurance coverage and employer benefits—has created a boom in counseling and therapy jobs. These roles are now found in schools, clinics, hospitals, and private practices.

Jon Guidi, CEO of HealthCare Recruiters International, notes that although many staffing shortages have eased, behavioral health remains an exception. “It’s still drastically underserved,” he explained. “Wages have increased so rapidly in this field that many organizations—whether home health agencies or addiction treatment centers—can’t afford to meet current salary expectations.”

That said, health care employment is not guaranteed to continue growing at its current pace. One major threat is the potential reduction in federal health spending. The Republican-backed legislation could leave 17 million more people without health insurance by 2034. Uninsured individuals often delay care until emergencies arise, which can be more expensive and harder to manage. How the health care system would absorb these costs remains uncertain.

Other planned cuts include decreased funding for medical education and research. These changes could shrink the pipeline of trained professionals entering the field, further tightening supply.

Efficiency improvements could also slow job growth. Many treatments that once required hospitalization can now be done on an outpatient basis. Some new drugs—such as diabetes medications now prescribed for weight loss—could help reduce the incidence of obesity-related chronic illness.

Advancements in artificial intelligence are also starting to impact the sector. AI tools could significantly reduce administrative workloads, which currently make up about 20% of health care employment. Some tasks now handled by medical professionals, such as image analysis or recordkeeping, might soon be streamlined by AI.

Still, health care’s importance to the labor market will likely persist. But as Harvard economist David Cutler warns, the goal shouldn’t simply be to maximize employment in the sector. The rising cost of care has strained government budgets and household finances alike.

“Every unnecessary job in health care is a missed opportunity elsewhere in the economy,” Cutler said. “We need people to work in health care—but only as many as we truly need. The rest could be doing something more productive.”ho we don’t need to be employed in health care, that’s a waste,” Dr. Cutler said. “That’s money in health care that costs people money when they’re sick, and that’s a person who could be doing a job somewhere else.”