Linked here is a talk I gave to the UCD Human Sciences symposium that took place in Newman House on Tuesday. Below is a summary of this. All of this is preliminary but, given that we are dealing with a real-time situation, I feel some degree of responsibility to present findings for discussion even if it may be some more time before the results are "camera-ready".
(i) The talk begins with an overview of the extent of the Irish recession. Ireland has witnessed a fall off in GNP that is the largest in the last 100 years. Retail sales are one third less than peak. Unemployment rates spiraled and are now stabilising at over 13 per cent, with far higher rates particularly among young men.
(ii) The second part of the talk addresses how recent research and developments in behavioural economics differs from traditional understanding of recession. In particular, loss aversion and endowment effects imply asymmetric effects of economic fluctuations with psychological effects being steeper on the downside. Myopia implies that downturns may have greater psychological effects than would be estimated from models where individuals smoothly discount the future. Recent work on emotion and identity further highlights the extent to which the state of unemployment may be particularly aversive. Furthermore, there has been an increasing emphasis in economics in measuring well-being directly on the basis that consumption itself is incomplete as a marker of welfare, particularly in economically wealthy countries.
(iii) The third part of the talk examines evidence from the "Celtic Tiger" period in Ireland. Following an increase in well-being that occurred in the late 1980s and early 1990s largely due to a decline in unemployment and increased job security, psychological well-being levels remained mostly static during the Irish economic boom. Furthermore, the effect of income on well-being is small once one climbs above the bottom 15 per cent of the income distribution. This is robust to a wide range of models. The effect of unemployment is still enormous through the Celtic Tiger period, being a great impact on well-being than either divorce or the presence of a chronic illness. To date, no variable I have ever looked at can explain this effect. I worried somewhat before that the results on Ireland are out of line with the Stephenson/Wolfers work but if you look closely at their paper, you can see that Ireland is one of the few countries that provides poor evidence for their central point when looked at from the point of view of the time series (see Figure 16).
(iv) The fourth part of the talk examines the well-being of a sample of approximately 1,300 students that we tracked from 2009-2010. Approximately 300 of these had graduated, and approximately 80 of these are unemployed. These results are preliminary but the effect of unemployment on life satisfaction is once again enormous and completely robust to a wide range of contemporaneous and lagged controls including personality measures, parental income and several others.
(v) The fifth part of the talk presents preliminary findings from our IRCHSS-funded project on well-being. Once again, unemployment has a massive effect on well-being, dominating all other effects including home-value and income reductions by a large margin. A big limitation of our data so far is a sample size of approximately 500 which reduces our ability to look at interactions and a restriction to households with internet access, which raises representativeness concerns. But the effects are substantial and in the direction expected. We are working further now on examining the interaction of home value reductions and unemployment in determining well-being. Furthermore we are examining the extent to which people with different types of values and identities are differentially affected by economic changes. A further point that is interesting is that the effect of income reductions on life satisfaction, while not in the ballpark of unemployment changes, look qualitatively higher than previous work in Ireland. Again, this results is on probation but I have a strong sense that concerns such as procedural unfairness, anger about bank bailouts and so on may be magnifying the well-being effect of income losses in Ireland. Furthermore, we need to experiment with the ordering of these questions. I worry that asking people about income reductions may prime them to give lower life satisfaction scores than they would otherwise give. We have not controlled for this so far in our research.
(vi) The sixth part of the talk examines the evolution of the suicide rate in Ireland. Ireland's suicide rate increased enormously during the economic boom, partly in keeping with a long-run increase in the suicide rate. It stabilised post 2002 and, while suicide researchers urge caution in interpreting recent suicide data due to potential for changes in death reports and so on, it looks likely that the suicide rate in Ireland began to decline post 2004. This decline continued in 2008 the first year of our recession in Ireland. Vital statistics provided by the CSO indicate increases in the number of suicides in 2009 relative to 2008. For example there were 111 suicides reported in the third quarter of 2008 as opposed to 126 in the third quarter of 2009. This is worth treating seriously and certainly merits investigation as to the composition and potential motivations for suicides in 2009. However, the idea of a stable relationship between macroeconomic fluctuations and suicides in Ireland looks fanciful with some of the highest suicide rates in the history of the country having taken place at times of high economic growth. Furthermore, as said above, most suicide researchers in Ireland caution against the use of the raw figure in the year of publication as they are subject to revision.
(vii) The final part of the talk argues that far greater emphasis be placed on the development of unemployment policies in Ireland. Furthermore, it must be widely acknowledged that our current policies are failing badly. The viewpoint that unemployment results from a preference for leisure looks at best a tautology from the viewpoint of the well-being data, and at worst a dangerously prejudiced misconception. Ongoing research here is gathering further data to examine the effect of unemployment and home value reductions at the micro level on well-being. We are also comparing the effects of recession when looked at from traditional life satisfaction and well-being measures to when we examine more "microscopic" measures such as the day reconstruction method. The effect of unemployment stress on job search and financial decision making is also being examined.