Economic downturns: Bad for your wallet, good for your health?

Economic recessions have undeniable negative effects on society, such as increased unemployment, slow business growth, and decreased GDP. However, new research finds that recessions may also affect our lives positively—through decreasing morbidity and mortality rates. Previous studies identified a correlation between falling morbidity rates and economic downturns for recessions between 1980 and 2010; however, in a recent study for the National Bureau of Economic Research, Christopher Ruhm’s research takes these findings a step further by establishing that this correlation becomes stronger as the severity of the recession increases.

Ruhm looks at data from the United States on morbidity and unemployment from 1976 to 2013, using unemployment levels as a proxy for recession severity. These data contain information on four “severe recessions,” with two recessions from 1980 to 1982 considered together due to their close proximity. Ruhm defines a severe recessionary year as one with an economic downturn in which “the economy was in recession for at least six months…that continued through the year of the peak annual unemployment rates.”

According to Ruhm, the correlation between high unemployment rates and reduced mortality/morbidity was strongest during recessions that occurred between 1976 and 1995, and weaker during more recent recessions. However, mortality rates were in steep decline prior to 2007, which could contribute to this weaker correlation.

Why does this relationship exist? Theory is sparse on the subject. Ruhm hypothesizes that, during recessions, countries see a reduction in negative health behaviors. Negative health behaviors, such as alcohol consumption and smoking, are often luxury activities whose prices become unaffordable for the large portion of the population who might be unemployed during a recession. A reduction in these behaviors can contribute to decreased morbidity and mortality rates. Ruhm offers two foreign examples regarding import and export pricing to support this theory: Iceland and post-Soviet Russia.

During the 2008 Icelandic economic crisis, the price index of imported goods like tobacco rose by 40 percent, and the price of alcohol rose by 49 percent. These price changes contributed to Icelanders consuming less of these products. Icelanders also became less likely to participate in other harmful health activities, such as indoor tanning. Simultaneously, Icelanders began to get more sleep using ambien and consume more fish oil.

However, following the dissolution of the Soviet Union in 1991—and the resulting economic disarray—life expectancy in Russia fell by 6.6 years. This seems to violate the mortality/recession correlation. Unlike the case in Iceland, alcohol became cheaper in Russia. Ruhm speculates that cheaper alcohol, paired with a dismal outlook on the future, contributed to the reverse relationship in Russia. As the price index of goods behaved uniquely compared to other countries, it is not surprising that consumer behavior reacted differently as well.

In the United States, enrollment in Medicaid provides an alternative explanation for the relationship of positive health outcomes during a recession. In the latter half of the Great Recession, Medicaid saw its biggest one-year increase ever recorded. As unemployment increased and workers began to lose insurance previously provided by employers, they turned to the federally subsidized alternative. From June 2008 to June 2009, an additional 3.3 million people enrolled in Medicaid.

Ruhm’s research and conclusions may at first be alarming, and it is important not to make overzealous conclusions about the connection between mortality and recessions. Recessions do not cause positive health outcomes—consumption generally decreases during a recession, and decreases in luxury purchases and leisure spending are a part of this overall trend. A reduction of negative health behaviors naturally follows. There are many other factors that affect health behavior that vary across time and location. Ruhm also considers that mental health, and its relationship to prosperity, may have been a key contributor to Russia’s health decline during the 1991 recession, and that mental health components should be further explored for other nations.

Large reductions in mortality and morbidity rates are odd byproducts of more severe recessions. Ruhm’s analysis solidifies this phenomenon, providing important insight into the health effects of a recession. Policymakers can use these insights to better design federal, healthcare, subsidy programs and respond to the needs of populations during economic downturns. Longer-term, positive, health impacts could emerge if citizens retain these healthy behaviors even in non-recessionary periods, and these beneficial behavior changes could accumulate to great personal savings and government savings over time.

Article Source: “Health Effects of Economic Crises,” Ruhm, Christopher J., NBER Working Paper, October 2015.

Feature Photo: cc/(Neff Conner)