The Social Impacts of Recession by Dr.CM.

Surendra Reddy
BSC,MBA,MSC(maths),PGPM,PGDHRM, SAPR/3, Mainframes, Ph.D(Mgt)

Professor, Dept of MBA Bangalore

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).

Rosenfelds (2009) study of property crime and homicide in USA 19702006: 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

Value

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

Value

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

80.00

Value
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

Value
60.00 50.00 40.00

1981

1990

2000

2005

Year

Income Inequality and Interpersonal Trust

(Source World Bank and WVS)
DEN SWE NOR NL 60.00 FIN

% saying most people can be trusted 1999

NZea

JAP 40.00 CAN GER B

SWI

AUS IRE ITA USA

SP AU KOR

GB

CZE FRA 20.00 HUN SLV

GRE MEX

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 MPs 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?).