IDEAS home Printed from https://ideas.repec.org/p/diw/diwsop/diw_sp1081.html
   My bibliography  Save this paper

Economic Downturns and Mental Wellbeing

Author

Listed:
  • Daniel Avdic
  • Sonja C. de New
  • Daniel A. Kamhöfer

Abstract

We study the impact of the business cycle on mental wellbeing by linking rich German survey data to over a decade of detailed gross domestic product information. Endogeneity concerns are tackled using a shift-share instrumental variables approach in which exposure to macroeconomic fluctuations is estimated from regional variations in historical industry sector composition. Estimation results reveal strong negative effects of economic downturns on both life satisfaction and a multidimensional measure of mental health. We provide evidence that these effects are mediated by fear of job loss and income reductions, while actual unemployment effects are negligible. A case study of the impact of the global financial crisis reveals that adverse effects on mental wellbeing are persistent and remained even after the economy recovered.

Suggested Citation

  • Daniel Avdic & Sonja C. de New & Daniel A. Kamhöfer, 2020. "Economic Downturns and Mental Wellbeing," SOEPpapers on Multidisciplinary Panel Data Research 1081, DIW Berlin, The German Socio-Economic Panel (SOEP).
  • Handle: RePEc:diw:diwsop:diw_sp1081
    as

    Download full text from publisher

    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.789597.de/diw_sp1081.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Daniel A. Broxterman & William D. Larson, 2020. "An empirical examination of shift‐share instruments," Journal of Regional Science, Wiley Blackwell, vol. 60(4), pages 677-711, September.
    2. Jaeger, David A & Ruist, Joakim & Stuhler, Jan, 2018. "Shift-Share Instruments and the Impact of Immigration," CEPR Discussion Papers 12701, C.E.P.R. Discussion Papers.
    3. Knapp, Martin & Wong, Gloria, 2020. "Economics and mental health: the current scenario," LSE Research Online Documents on Economics 102717, London School of Economics and Political Science, LSE Library.
    4. Anna Macintyre & Daniel Ferris & Briana Gonçalves & Neil Quinn, 2018. "What has economics got to do with it? The impact of socioeconomic factors on mental health and the case for collective action," Palgrave Communications, Palgrave Macmillan, vol. 4(1), pages 1-5, December.
    5. Eliason, Marcus & Storrie, Donald, 2009. "Job loss is bad for your health - Swedish evidence on cause-specific hospitalization following involuntary job loss," Social Science & Medicine, Elsevier, vol. 68(8), pages 1396-1406, April.
    6. Browning, Martin & Heinesen, Eskil, 2012. "Effect of job loss due to plant closure on mortality and hospitalization," Journal of Health Economics, Elsevier, vol. 31(4), pages 599-616.
    7. Hollingsworth, Alex & Ruhm, Christopher J. & Simon, Kosali, 2017. "Macroeconomic conditions and opioid abuse," Journal of Health Economics, Elsevier, vol. 56(C), pages 222-233.
    8. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 35-78.
    9. Ann H. Stevens & Douglas L. Miller & Marianne E. Page & Mateusz Filipski, 2015. "The Best of Times, the Worst of Times: Understanding Pro-cyclical Mortality," American Economic Journal: Economic Policy, American Economic Association, vol. 7(4), pages 279-311, November.
    10. Clark, Andrew E & Georgellis, Yannis & Sanfey, Peter, 2001. "Scarring: The Psychological Impact of Past Unemployment," Economica, London School of Economics and Political Science, vol. 68(270), pages 221-241, May.
    11. Reichert, Arndt R. & Tauchmann, Harald, 2017. "Workforce reduction, subjective job insecurity, and mental health," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 187-212.
    12. Robert J. MacCulloch & Rafael Di Tella & Andrew J. Oswald, 2001. "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness," American Economic Review, American Economic Association, vol. 91(1), pages 335-341, March.
    13. Cahuc, Pierre & Carcillo, Stéphane, 2011. "Is Short-Time Work a Good Method to Keep Unemployment Down?," IZA Discussion Papers 5430, Institute of Labor Economics (IZA).
    14. Kirill Borusyak & Peter Hull & Xavier Jaravel, 2022. "Quasi-Experimental Shift-Share Research Designs [Sampling-based vs. Design-based Uncertainty in Regression Analysis]," Review of Economic Studies, Oxford University Press, vol. 89(1), pages 181-213.
    15. Douglas L. Miller & Marianne E. Page & Ann Huff Stevens & Mateusz Filipski, 2009. "Why Are Recessions Good for Your Health?," American Economic Review, American Economic Association, vol. 99(2), pages 122-127, May.
    16. repec:dau:papers:123456789/7024 is not listed on IDEAS
    17. Matthias Nübling & Hanfried H. Andersen & Axel Mühlbacher & Jürgen Schupp & Gert G. Wagner, 2007. "Computation of Standard Values for Physical and Mental Health Scale Scores Using the SOEP Version of SF12v2," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 171-182.
    18. Justin Wolfers, 2003. "Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Well‐Being," International Finance, Wiley Blackwell, vol. 6(1), pages 1-26, March.
    19. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-659, May.
    20. Tom Buchmueller & Michel Grignon & Florence Jusot, 2007. "Unemployment and Mortality in France, 1982-2002," Centre for Health Economics and Policy Analysis Working Paper Series 2007-04, Centre for Health Economics and Policy Analysis (CHEPA), McMaster University, Hamilton, Canada.
    21. María E. Dávalos & Hai Fang & Michael T. French, 2012. "Easing The Pain Of An Economic Downturn: Macroeconomic Conditions And Excessive Alcohol Consumption," Health Economics, John Wiley & Sons, Ltd., vol. 21(11), pages 1318-1335, November.
    22. Jeremy Arkes, 2007. "Does the economy affect teenage substance use?," Health Economics, John Wiley & Sons, Ltd., vol. 16(1), pages 19-36, January.
    23. Gerdtham, Ulf-G. & Ruhm, Christopher J., 2006. "Deaths rise in good economic times: Evidence from the OECD," Economics & Human Biology, Elsevier, vol. 4(3), pages 298-316, December.
    24. Angus Deaton, 2012. "The financial crisis and the well-being of Americans," Oxford Economic Papers, Oxford University Press, vol. 64(1), pages 1-26, January.
    25. Andrew J. Oswald & Stephen Wu, 2011. "Well-Being across America," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1118-1134, November.
    26. Daniel Kahneman & Alan B. Krueger, 2006. "Developments in the Measurement of Subjective Well-Being," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 3-24, Winter.
    27. Ariizumi, Hideki & Schirle, Tammy, 2012. "Are recessions really good for your health? Evidence from Canada," Social Science & Medicine, Elsevier, vol. 74(8), pages 1224-1231.
    28. Brewer Mike & Crossley Thomas F. & Joyce Robert, 2018. "Inference with Difference-in-Differences Revisited," Journal of Econometric Methods, De Gruyter, vol. 7(1), pages 1-16, January.
    29. Andrew Clark & Yannis Georgellis & Peter Sanfey, 2001. "Scarring: The Psychological Impact of Past Unemployment," Economica, London School of Economics and Political Science, vol. 68(270), pages 221-241, May.
    30. Carpenter, Christopher S. & McClellan, Chandler B. & Rees, Daniel I., 2017. "Economic conditions, illicit drug use, and substance use disorders in the United States," Journal of Health Economics, Elsevier, vol. 52(C), pages 63-73.
    31. Fidel Gonzalez & Troy Quast, 2011. "Macroeconomic changes and mortality in Mexico," Empirical Economics, Springer, vol. 40(2), pages 305-319, April.
    32. David H. Autor & Mark G. Duggan, 2003. "The Rise in the Disability Rolls and the Decline in Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 157-206.
    33. Schiele, Valentin & Schmitz, Hendrik, 2016. "Quantile treatment effects of job loss on health," Journal of Health Economics, Elsevier, vol. 49(C), pages 59-69.
    34. Christian Krekel & Marie L. Poprawe, 2014. "The effect of local crime on well-being," KOF Working papers 14-358, KOF Swiss Economic Institute, ETH Zurich.
    35. Ruhm, Christopher J. & Black, William E., 2002. "Does drinking really decrease in bad times?," Journal of Health Economics, Elsevier, vol. 21(4), pages 659-678, July.
    36. Marianne Bertrand & Emir Kamenica & Jessica Pan, 2015. "Gender Identity and Relative Income within Households," The Quarterly Journal of Economics, Oxford University Press, vol. 130(2), pages 571-614.
    37. SonjaC. Kassenboehmer & JohnP. Haisken-DeNew, 2009. "You're Fired! The Causal Negative Effect of Entry Unemployment on Life Satisfaction," Economic Journal, Royal Economic Society, vol. 119(536), pages 448-462, March.
    38. McInerney, Melissa & Mellor, Jennifer M., 2012. "Recessions and seniors’ health, health behaviors, and healthcare use: Analysis of the Medicare Current Beneficiary Survey," Journal of Health Economics, Elsevier, vol. 31(5), pages 744-751.
    39. Goebel Jan & Grabka Markus M. & Liebig Stefan & Kroh Martin & Richter David & Schröder Carsten & Schupp Jürgen, 2019. "The German Socio-Economic Panel (SOEP)," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 239(2), pages 345-360, April.
    40. Christopher J. Ruhm, 2000. "Are Recessions Good for Your Health?," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 617-650.
    41. Fogel, Robert W, 1994. "Economic Growth, Population Theory, and Physiology: The Bearing of Long-Term Processes on the Making of Economic Policy," American Economic Review, American Economic Association, vol. 84(3), pages 369-395, June.
    42. Christian Dustmann & Bernd Fitzenberger & Uta Sch?nberg & Alexandra Spitz-Oener, 2014. "From Sick Man of Europe to Economic Superstar: Germany's Resurgent Economy," Journal of Economic Perspectives, American Economic Association, vol. 28(1), pages 167-188, Winter.
    43. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, September.
    44. Christian Krekel & Marie L. Poprawe, 2014. "The Effect of Local Crime on Well-Being: Evidence for Germany," SOEPpapers on Multidisciplinary Panel Data Research 678, DIW Berlin, The German Socio-Economic Panel (SOEP).
    45. Shin-Jong Lin, 2009. "Economic fluctuations and health outcome: a panel analysis of Asia-Pacific countries," Applied Economics, Taylor & Francis Journals, vol. 41(4), pages 519-530.
    46. Xu, Xin, 2013. "The business cycle and health behaviors," Social Science & Medicine, Elsevier, vol. 77(C), pages 126-136.
    47. Charles, Kerwin Kofi & DeCicca, Philip, 2008. "Local labor market fluctuations and health: Is there a connection and for whom?," Journal of Health Economics, Elsevier, vol. 27(6), pages 1532-1550, December.
    48. Neumayer, Eric, 2004. "Recessions lower (some) mortality rates:: evidence from Germany," Social Science & Medicine, Elsevier, vol. 58(6), pages 1037-1047, March.
    49. Dora L. Costa, 2015. "Health and the Economy in the United States from 1750 to the Present," Journal of Economic Literature, American Economic Association, vol. 53(3), pages 503-570, September.
    50. Anna Aizer, 2010. "The Gender Wage Gap and Domestic Violence," American Economic Review, American Economic Association, vol. 100(4), pages 1847-1859, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kathrin Durizzo & Edward Asiedu & Antoinette van der Merwe & Isabel Günther, 2022. "Economic Recovery but Stagnating Mental Health During a Global Pandemic? Evidence from Ghana and South Africa," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 68(2), pages 563-589, June.
    2. Nicole Black & Angela Jackson & David W. Johnston, 2022. "Whose mental health declines during economic downturns?," Health Economics, John Wiley & Sons, Ltd., vol. 31(1), pages 250-257, January.
    3. Botha, Ferdi & Nguyen, Viet H., 2022. "Opposite nonlinear effects of unemployment and sentiment on male and female suicide rates: Evidence from Australia," Social Science & Medicine, Elsevier, vol. 292(C).
    4. Ferdi Botha & Viet H. Nguyen, 2021. "Opposite Nonlinear Effects of Unemployment and Sentiment on Male and Female Suicide Rates: Evidence from Australia," Melbourne Institute Working Paper Series wp2021n15, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Avdic, Daniel & de New, Sonja C. & Kamhöfer, Daniel A., 2021. "Economic downturns and mental health in Germany," European Economic Review, Elsevier, vol. 140(C).
    2. Ruhm, Christopher J., 2015. "Recessions, healthy no more?," Journal of Health Economics, Elsevier, vol. 42(C), pages 17-28.
    3. Christopher J. Ruhm, 2016. "Health Effects of Economic Crises," Health Economics, John Wiley & Sons, Ltd., vol. 25(S2), pages 6-24, November.
    4. Wang, Huixia & Wang, Chenggang & Halliday, Timothy J., 2018. "Health and health inequality during the great recession: Evidence from the PSID," Economics & Human Biology, Elsevier, vol. 29(C), pages 17-30.
    5. Chenggang Wang & Huixia Wang & Timothy J. Halliday, 2017. "Health and Health Inequality during the Great Recession: Evidence from the PSID," Working Papers 201703, University of Hawaii at Manoa, Department of Economics.
    6. Hollingsworth, Alex & Ruhm, Christopher J. & Simon, Kosali, 2017. "Macroeconomic conditions and opioid abuse," Journal of Health Economics, Elsevier, vol. 56(C), pages 222-233.
    7. Lídia Farré & Francesco Fasani & Hannes Mueller, 2018. "Feeling useless: the effect of unemployment on mental health in the Great Recession," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-34, December.
    8. Cristina Bellés‐Obrero & Sergi Jiménez‐Martín & Judit Vall‐Castello, 2016. "Bad Times, Slimmer Children?," Health Economics, John Wiley & Sons, Ltd., vol. 25(S2), pages 93-112, November.
    9. Janke, Katharina & Lee, Kevin & Propper, Carol & Shields, Kalvinder K & Shields, Michael, 2020. "Macroeconomic Conditions and Health in Britain: Aggregation, Dynamics and Local Area Heterogeneity," CEPR Discussion Papers 14507, C.E.P.R. Discussion Papers.
    10. Nguyen,Ha Minh & Nguyen,Huong, 2016. "Unemployment and mortality : evidence from the great recession," Policy Research Working Paper Series 7603, The World Bank.
    11. Sarah A. Burgard & Jennifer A. Ailshire & Lucie Kalousova, 2013. "The Great Recession and Health," The ANNALS of the American Academy of Political and Social Science, , vol. 650(1), pages 194-213, November.
    12. Bassanini, Andrea & Caroli, Eve, 2014. "Is work bad for health? The role of constraint vs choice," CEPREMAP Working Papers (Docweb) 1402, CEPREMAP.
    13. Jofre-Bonet, Mireia & Serra-Sastre, Victoria & Vandoros, Sotiris, 2018. "The impact of the Great Recession on health-related risk factors, behaviour and outcomes in England," Social Science & Medicine, Elsevier, vol. 197(C), pages 213-225.
    14. Shamma Adeeb Alam & Bijetri Bose, 2022. "Stepping into adulthood during a recession: Did job losses during the Great Recession impact health of young adults?," Health Economics, John Wiley & Sons, Ltd., vol. 31(8), pages 1730-1751, August.
    15. repec:dau:papers:123456789/12483 is not listed on IDEAS
    16. Colombo, Emilio & Rotondi, Valentina & Stanca, Luca, 2018. "Macroeconomic conditions and health: Inspecting the transmission mechanism," Economics & Human Biology, Elsevier, vol. 28(C), pages 29-37.
    17. Max Brüning & Josselin Thuilliez, 2019. "Mortality and Macroeconomic Conditions: What Can We Learn From France?," Demography, Springer;Population Association of America (PAA), vol. 56(5), pages 1747-1764, October.
    18. Chulhee Lee & Kyeongbae Kim, 2017. "Changing Relationship between Unemployment and Mortality in South Korea," Health Economics, John Wiley & Sons, Ltd., vol. 26(12), pages 1630-1636, December.
    19. Kadir Atalay & Rebecca Edwards & Stefanie Schurer & David Ubilava, 2021. "Lives saved during economic downturns: Evidence from Australia," Health Economics, John Wiley & Sons, Ltd., vol. 30(10), pages 2452-2467, September.
    20. Garth Heutel & Christopher J. Ruhm, 2016. "Air Pollution and Procyclical Mortality," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(3), pages 667-706.
    21. José A. Tapia Granados & Edward L. Ionides, 2017. "Population health and the economy: Mortality and the Great Recession in Europe," Health Economics, John Wiley & Sons, Ltd., vol. 26(12), pages 219-235, December.

    More about this item

    Keywords

    Business cycle; mental health; life satisfaction; global financial crisis; shift-share instrument;
    All these keywords.

    JEL classification:

    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:diw:diwsop:diw_sp1081. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/sodiwde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bibliothek (email available below). General contact details of provider: https://edirc.repec.org/data/sodiwde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.