Hospitals Seeing Relief from Declining Wage Inflation, Job Openings

Key labor indicators are trending in the right direction and providing a reason for optimism for hospitals.

Hospitals and health systems are finally seeing labor challenges easing up, even if they’re not returning all the way to pre-pandemic levels.

Specifically, hospitals are experiencing wage inflation stabilization and fewer job openings, according to a report by Fitch Ratings, which is providing organizations some breathing room from the spikes of recent years.

After year-over-year average hourly earnings sat at around 8% from 2021-2022, wages growth has dropped from 4.2% in 2023 to 3% in 2024.

Hospitals’ payrolls remain on the rise, now 6.7% above February 2020, but part of that increase is due to a welcomed decrease in job vacancies. Hospitals have averaged 18,650 monthly job additions from September 2023 to August 2024, compared to the 14,510 jobs averaged in the previous 12 months.

Healthcare workers are also sticking around at their organizations longer, with the quitting rate falling from the high of 2.9% in May 2023 to 2.3% in July.

Fitch noted that the wage inflation in recent years, while costly, helped hospitals reduce employee turnover and cut down on contract labor reliance.

"Healthcare leadership has been satisfied with this labor exchange, and it has resulted in more predictable monthly expenses, qualitative benefits and improved organizational culture,” the report said.

Despite the encouraging labor trends, hospitals are still not enjoying anything close to the pre-pandemic days.

Job openings in healthcare and social assistance fell from 7.9% in January to 6% in July, but remain far off from the 4.2% average from 2010 to 2019.

"Hospitals are still dealing with post-pandemic pent-up service demand, especially from seniors, that has kept labor needs high,” Fitch Ratings director Richard Park said in a statement. "Sustained high volume levels are a modest positive for health systems, but often come with administrative challenges, slow payments and denial of prior authorizations for care, in particular when dealing with Medicare Advantage insurers.”

The increase in demand for services could significantly worsen the labor shortage problem in the coming years.

Based on current projections, the U.S. will have a deficit of over 100,000 critical workers by 2028, when it needs around 18.7 million workers, according to research by Mercer consultancy.

Even with the respite from labor constraints hospitals may be getting right now, CEOs must ensure they’re taking a long-term view of their workforce and continue to prioritize recruitment and retention strategies.