BSE Insights on the Corona Crisis: Health and recessions

By Peter Haan

The coronavirus pandemic and the related shutdown of the society and economy will lead to a severe recession in most countries. It is likely that unemployment will increase and that a sizable share of households will face a reduction in net household income and living standards. An additional concern of the economic downturn is related to health and mortality. Will the coming recession on average lead to negative health effects and an increase in mortality?  

The previous empirical literature provides a clear answer to this question: overall health increases and mortality rates decrease during economic recessions. Ruhm (2016) reviews the existing evidence that in most OECD countries, including the US, France, Germany, Spain or Canada, an increase in the unemployment rate has positive side effects on health and life expectancy. These analyses exploit variation in unemployment rates between different regions within one country, which allows to control for time-specific effects related to health and mortality such as medical progress. In his paper, Ruhm makes an additional empirical point that is very relevant for the expected health effects of the corona recession. He shows that the positive health and life expectancy effects are also present in severe recessions, for example in the recession after the financial crises of 2007-2009.

Importantly, recessions have opposing effects on different health outcomes. There is evidence that physical health improves but mental health deteriorates during recessions. Specifically, suicide rates increase while the positive effects on health and life expectancy are mainly related to a reduction of motor vehicle accidents and air pollution. This suggests that the health and mortality effects are heterogeneous. While we can expect on average positive effects on health, for certain groups recessions will have adverse health effects and negative effects on life expectancy. Since the empirical studies are in general based on macro data on the regional level, there exists no robust evidence about group specific effects on the micro level, for example by education or income. More research and better data is required to provide evidence for the different subgroups.   

Obviously, the consequences of the corona crisis and the coming recession might be different from the previous experience. This crisis not only affects the economy but social life much more generally, especially during the shutdown. The travel restrictions currently in place might reinforce the positive effects related to pollution and traffic. At the same time, negative consequences for mental health may be much more pronounced. Therefore, it is important that policy makers discuss the concerns related to mental health in public and support measures to improve mental health.

Ruhm, Christopher, “Health Effects of Economic Crises”, Health Economics, 25(S2), November 2016, 6-24.DOI: 10.1002/hec.3373

This text was written as part of the new BSE Insights on the Corona Crisis series in which researchers of the Berlin School of Economics provide short texts with scientific content that is relevant for the crisis.