Health Benefits of Recessions

A Downturn’s Silver Lining, by Andrew Leigh, Australian Financial Review, 7 April 2009 .. Australia has enjoyed a steady decline in the road toll over the past generation. Thanks to safer cars and tougher road rules, the road toll has fallen about 3 percent a year for the past few decades. But two years stand out from the data: 1983 (down 15 percent) and 1990 (down 17 percent).

Is it just a coincidence that the two biggest drops in the Australian road toll coincided with the last two recessions? Probably not, if research by University of North Carolina Christopher Ruhm is to be believed. In a series of papers, Ruhm and his co-authors have meticulously documented that mortality tends to rise in booms and fall in busts. Recessions make you live longer. With titles like “A Healthy Economy Can Break Your Heart”, “Good Times Make You Sick” and “Healthy Living in Hard Times”, Ruhm’s research challenges the meme that economic downturns are unambiguously bad. We know that losing a job can be a searing experience, so how can a higher unemployment rate improve overall health?

The answer is that losing your job probably is bad for your health, but most people don’t lose their jobs in a recession. If Australian unemployment were to rise to 10 percent, nine-tenths of the labour force would still be employed. Even in severe downturns, most people keep their jobs – they just work fewer hours and earn
less.

At least in the short term, shorter hours and a slimmer pay packet seem to be good for average health. On-the-job injuries fall when there is less work around. We also have robust evidence that there are more alcoholics and chain smokers in good times than in downturns. Even severe obesity seems to drop when the economy hits the skids (suggesting that belt-tightening might be literal as well as figurative). In recessions, families are more likely to eat at home, and there is more time to exercise. People also get more sleep, which may not make you wealthy or wise, but certainly contributes to good health.

To quantify these effects, let’s look at current predictions of unemployment. In early-2008, the Australian unemployment rate was around 4 percent. This February, Treasury’s Updated Economic and Fiscal Outlook forecast that unemployment would rise to 7 percent by June 2010. (Treasurer Wayne Swan has since hinted that it could be higher than this, but has not given an updated figure.) So what would a 3 percentage point increase in unemployment do to mortality in Australia?

To answer this, I used estimates from a cross-country analysis of23 OECD countries (including Australia) by Ruhm and co-author Ulf Gerdtham. Their headline result is that a 3 percentage point rise in unemployment would reduce mortality in Australia by about 1 percent – saving around 1,650 lives per year.Which categories of deaths are likely to fall? In proportionate terms, the largest reduction would be a 6 percent drop in vehicle accidents (about 80 fewer deaths), since less economic activity means fewer cars on the road. We can alsoexpect a 5 percent drop in deaths from liver disease (80 lives saved), partly as a result of reduced alcoholism. A slump would also reduce flu and pneumonia deaths by about 3 percent (90 lives saved).

In absolute terms, the biggest gain from a major downturn would be from heart disease. Although an economic slump would only cut deaths in this category by 1 percent, heart disease is the nation’s biggest killer, so that would represent around 500 fewer deaths per year. There might also be a small rise in suicide – though this was not statistically significant in Gerdtham and Ruhm’s analysis, and its magnitude was too small to offset the other improvements. Overall, those most likely to be kept alive by a downturn are prime-age men.

These results are provocative, but need to be kept in perspective. Physical health may improve in a recession, but mental wellbeing and self-reported happiness decline. Less money reduces the capacity of households to enjoy the good life. And compared with joblessness, the mortality magnitudes are fairly small: a 3 percentage point rise in unemployment might avert 1,650 deaths, but it means that 340,000 Australian workers need to lose their jobs.

As Ruhm firmly notes in one of his papers: “Evidence that health deteriorates when the economy improves is not an argument for inducing recessions, which have overwhelmingly negative consequences even if worse physical health is not one of them.” Or to put it another way, the cloud may have a silver lining, but we’re still going to get wet.