Downturns are bad for your purse but not necessarily for your well-being.
By ASHER MEIRbank teller 88(photo credit: )
Recessions, like the one we are in now, are always bad for economic growth. In fact, a recession is defined as a marked slowdown in growth; one common definition is two consecutive quarters of stagnant or reduced output. But as I frequently point out in this column, economic production is only one measure of well-being, and not necessarily the best. How do other measures of well-being fare during economic downturns?
I refer only to downturns in developed economies, which leave the general level of income at a first-world level. It is important to remember that even if this recession brings a few percentage points of negative growth, that means it brings us back to the level of income we had in, say, 2005 or 2006, when we were not exactly paupers. Obviously in subsistence economies economic downturns can have serious repercussions.
All the research I have examined shows that it is not easy to discern a clear negative impact of recession on other measures of well-being.
Perhaps one surprising finding relates to health. A number of studies have found that people tend to be healthier in economic downturns. Various explanations have been given. Presumably with less money for gas people walk more, and in general have more time for exercise. For instance, a recent report showed show that people who already have health-club memberships use them much more during downturns; non-club members are probably also more active.
Diet also plays a role: Some of the most expensive foods are also among the least healthy, so when people tighten their belts figuratively, they evidently do so literally as well.
Then there is stress: Being unemployed is a significant source of stress, but being over-employed is stressful, too.
A final explanation is that people take good care of themselves when they can't afford to be sick. People who lose their jobs may lose their insurance, and people who were already uninsured may have less of an economic cushion to deal with illness. So they will take extra care to avoid problems.
Regarding life satisfaction, the evidence for negative impact is also not impressive. A 1989 paper by Sasqia Chin-Hon-Foei tracked life satisfaction for nine European countries through the 1980-1982 recession. Chin-Hon-Foei found that the downturn caused a very slight reduction in reported life satisfaction, which was evident only about a year after the decline in income. But she did find that the effect was more pronounced for especially vulnerable individuals, such as those unemployed or living alone. The effect is also greater for countries with less of a social safety net.
One explanation is that this result follows from standard economic theory. Economists note that people smooth their standard of living. One month or year of lower income will likely be met not with significant cuts in living standards but with less saving or even by dipping into savings.
In recessions, people refrain from buying big-ticket items like new cars, houses or refrigerators; they continue to use the old ones. So actual household consumption may be little changed during a short recession, or even a fairly extended one like that of 1980-1982. (Conversely, a spending boom may contribute little to consumption in the short run; people may be buying durable goods that will serve them for years to come, including lean ones.)
Another explanation is the "best things in life are free" approach. (Anthropologist Grant McCracken calls this "surging versus dwelling," but I'm not sure this improves much on the traditional expression.) The idea is that people can get satisfaction from market consumption and from non-market consumption. When people have money, they emphasize the first; when they lose it, they emphasize the second. A rich person's idea of a good time may be to go the opera, which is very expensive, while a poor person may enjoy singing a song, perhaps with friends, which is very inexpensive.
Another example: In economic downturns, people may spend more time helping others, which studies show to be the activity with the greatest positive impact on life satisfaction.
In trying to overcome the gloom that accompanied the onset of the Great Depression, president Franklin Roosevelt proclaimed, "The only thing we have to fear is fear itself." Fear and gloom make a given downturn worse for welfare and, in addition, aggravate the economic woes themselves.
My column cannot do much to stave off the recession, but I hope it will help readers keep a positive attitude in the coming period, which for most of you will be accompanied by a shrinking bank account, but for many of you will be accompanied by an improvement in your health, your relationships and maybe even your singing ability.
ethics-at-work@besr.org
Asher Meir is research director at the Business Ethics Center of Jerusalem (www.besr.org), an independent institute in the Jerusalem Institute of Technology.
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