The Social Impacts of Recession

Andy Green

Centre for Learning and Life Chances in Knowledge Economies

and Societies (LLAKES), Institute of Education

Presentation to ESRC/Treasury Seminar

29.09.09
 Constraints on Analysis

Precise estimates of the social impacts of recession are difficult:

• Many social effects may not yet be visible

• Social impacts often lag substantially behind labour market effects
of recession which, in turn, lag behind economic crises.
• Social impacts vary across countries (not least due to policy
responses)
• Regions in the UK are very unevenly affected
• There is no uniform pattern in past UK recessions (mid 70s, early
80s, early 90s, early 2000s) to use as a guide.
 Impact of Rising Unemployment on Health

Some studies suggest that recessions can lead to health gains

by encouraging people to engage in fewer unhealthy activities
such as overconsumption of food and alcohol. Traffic fatalities
can go down if fewer people can afford to drive.

However, research suggests rising unemployment can

contribute to:

• mental health and addiction problems

• the adoption of less healthy lifestyles (more consumption of
cheap food, and alcohol and nicotine due to stress)
• heart attacks
• poor disease management due to overburdened health care
services.
 Impacts on Health and Crime

Stuckler et al (Lancet 2009) looked at the effect of

rising unemployment on health in 26 countries, 1970
– 2007, using age-standardised and age-specific
mortality data, and correcting for population ageing,
past employment and mortality trends.

The research only looks at effects within three years

so may underestimate total effects.
 Effects of Unemployment Rises
on Health and Crime

• No overall effects on mortality rates.

Rise of 1% in unemployment rates associated with:

• 0.79% rise in suicides at ages below 65 yrs

• 0.79% rise in homicides

• 1.39% decrease in road traffic deaths.

 Effects of Unemployment Health and Crime 2

3% increase in unemployment associated with:

• 4% more suicides
• 6% more murders
• 28% increase in deaths from alcohol.
• Heart attacks only increased for 30-44 yr olds.
 Crime and Recession

Mixed results from earlier research on economic conditions and crime.

Recent research finds more consistent patterns, using measures of
economic output and perceptions of economic conditions, rather than
unemployment (Arvanites and Defina, 2006; Gould et al, 2002; Grogger, 1998; Resfeld and Fornage, 2007).

Rosenfeld’s (2009) study of property crime and homicide in USA 1970-

2006:

• Measures for unemployment rates, GDP pc and index of consumer

sentiment (controlling for demographics, age and race, and policing and
sentencing) are correlated with each other and with both acquisitive crime
and homicide.

• Economic crisis increases acquisitive crime and this in turn increases

homicides by exposing more people to risky and lawless situations.
 Mitigating Effects of Social Policy

• For every US$ 10 more investment in ALM policies there was

a 0.038% lower effect on suicide rates of people under 65
across countries (Stuckler et al).

• At US$ 190 pc rises on unemployment had no adverse effects

on Suicide.

• Both Finland and Sweden saw suicide rates drop in early

1990s despite rapid rises in unemployment. Stuckler et al put
this down to better unemployment protection.
 Recent Crime Trends in the UK

• The latest British Crime Survey (Dec 2008) reports a 25% increase
in Thefts from the Person but cannot tell us much about trends since
the first labour market effects of the recession (2008 Quarter 2)
since data includes crimes going back to December 2007.

• The most recent Police Recorded Crimes data (for October to

December 2008) post-dates labour market changes. Compared with
the same period in 2007 total recorded crime had continued to fall
but certain categories of crime have increased (Domestic Burglary
up 4% and Drugs Related up 6%).

• Substantial rise for Fraud and Forgery (up by 5% on previous year)

with a 16% rise year on year in previous quarter.

• One might expect to see a rise in ethnically and religiously related

crime but this was not visible for data in 2008.
Percentage Change in Numbers of Recorded Crimes, Oct to Dec
2008, Compared with Same Quarter in Previous Year.
(Home Office Statistical Bulletin April 2009)
 Effects of Recession on Social Cohesion

• Lack of annual data on the main measures of social cohesion

(trust in other people and institutions, tolerance etc) makes it
difficult to match trends in these measures with recession
indicators.

• However, various indicators of social cohesion (trust; violent

crime) co-vary with income inequality across countries.

• If recession leads to further rises in inequality we may impute

that trust in others and in institutions is likely to drop further.
 ` Trends in Interpersonal Trust
Percentage saying “most people can be trusted”
Sources: Almond and Verba (1963) and
World Values Survey Waves 1-5

GB
60.00 US
GER
ITA

50.00

40.00
V a lu e

30.00

20.00

10.00

0.00

1959 1981 1990 1995 2000 2005

Year
 Trends in Institutional Trust
Percentage expressing “a great deal” + “quite a lot” of confidence
in parliament. Source: WVS

GB
60.00 US
FRA
GER
SWE

50.00
V a lu e

40.00

30.00

20.00

1981 1990 2000 2005

Year
 Trends in Ethnic Tolerance
Percentage not objecting to having immigrants / foreign workers
as neighbours
(Source: WVS)

GB
100.00 US
FRA
GER
SWE

90.00
V a lu e

80.00

70.00

60.00

50.00

1981 1990 2000 2005

Year
 Trends in Turnout in Parliamentary Elections
Proportion of eligible voters voting

(Source: International Institute for Democracy and Electoral Assistance)

GB
90.00 US
FRA
GER
SWE

80.00

70.00
V a lu e

60.00

50.00

40.00

1981 1990 2000 2005

Year
 Income Inequality and Interpersonal Trust
(Source World Bank and WVS)
% s a y in g m o s t p e o p le c a n b e tru s te d 1 9 9 9

DEN SWE

NOR
NL
60.00 FIN

NZea

JAP SWI
AUS
40.00 CAN
IRE USA
GER SP
ITA
B AU GB
KOR
CZE GRE
FRA MEX
20.00 HUN
SLV POL

POR
TUR

0.00

20.00 30.00 40.00 50.00 60.00

gini 1992-2000

Correlation: r = -.38*; p = .044; N = 28

 Inequality and Violent Crime

Violent crime: no of homicides, rapes and robberies per 100.000

Data from Interpol

Correlation: r = .71***; p = .000; N = 24

 Trends in Household Income Inequality the UK

Household income inequality rose for the third successive

year to 2008/9 and is now at the highest level since 1961when
the current series began (IFS, 2009).

It is hard to predict the future trend. Past experience of

recessions suggests no clear pattern.

Inequality declined during mid 1970s recession (when top

rates taxes were at 70%); rose during the early 1980s recession
(when top rates taxes were brought down); and remained
stable during early 1990s recession.
Real Income Growth in GB by Quintile Group
2007/7 – 2007/8
(Source: IFS, 2009)
Trend in Income Inequality by Ginis, 1961 to 2007
(Source: Muriel and Sibieta, IFS, 2009)
 Factors Affecting Future Trend

• Reduced incomes from property and other investments, along with

moderation in pay and bonus payments at the top end, would tend to
reduce inequality. However data from 2008 suggests salaries and bonuses
of highest earners still rising (Pirc and Railpen, 2009)).

• Unemployment is hitting younger people and the less educated and lower
paid the most. This will tend to increase inequality.

• Future cuts in public services likely to impact most on those below average
incomes, on some estimates (IFS) increasing unemployment by at least
another million.

If earnings at the top are brought down, overall inequality may decline or
remain stable. If they do not, inequality is likely to increase.
Unemployment Growth (Claimant Count) by Occupation, March
2008 – March 2009
(Source: Muriel and Sibieta, IFS, 2009)
Unemployment Growth by Education Group, 2005-8.
(Source: Muriel and Sibieta, IFS, 2009)
 Effects of Recession on Social Cohesion
Depend on Policy

Historical examples suggest that recessions produce very different mid- and long-
term effects on social cohesion in different political contexts.

The 1930s depression contributed to the eclipse of democracy in much of

continental Europe. In the US the long term effect was to strengthen democracy and
civil society.

The New Deal is often credited with ushering what Putnam calls the Golden Age of
social capital in the US.
 Likely Effects of Recession on Social Cohesion

In the absence of more policy interventions to mitigate

inequality, the current recession in the UK seems likely to
exacerbate many negative aspects of social cohesion,
reinforcing the downward trend in trust and tolerance.

We are already seeing evidence of growing intolerance in

some areas.

Growing support for BNP and England Defence League .

 Long-Term Erosion of Trust

Trends in level of social and institutional trust are of particular concern

(not least because they are good predictors of GDP growth and well-
being). Trust is likely to have declined to historically low levels even
before the recession.

The effect of recent revelations about MP’s expenses and financial abuses
will almost certainly have reduced public trust further. (cf Recent
Guardian/ICM poll showing only 14% believe the government is telling
the truth about the current financial situation).

Further rises in inequality, and perceptions that ordinary people are

unfairly carrying the burden of the financial problems caused by financial
speculators, could reduce trust in Britain to levels normally associated with
Latin American countries.
 Policy Implications

Priority must be given to reversing the long run increase in inequalities in income (and
wealth), which stifle mobility, and to mitigating the adverse social effects of
unemployment.

• Active Labour Market policies have been shown to reduce income inequalities (Nickell
and Layard, 1998) and to reduce adverse health effects of unemployment. These must
be targeted equally at young and older people alike.

• Enhancing trust requires a long-term cultural shift that can only be achieved by
restoring public perceptions of fairness.

• Requires effective measures to curb excessive earnings at the top (Changes in

Corporate Governance?) and to re-distribute some of the individual gains from
speculation in finance and housing (Tobin and Land Value taxes?).