Economic contractions are costly in a variety of ways. Permanent layoffs often cause a reduction of pay, with some persons losing employer-based health insurance, and recessions may reduce opportunities for promotions, result in deteriorating working conditions, decrease asset values, and lead to higher crime rates. In addition, economic downturns may adversely affect health. Seminal, but widely disputed, research indicates that unemployment rates are positively correlated with admissions to mental hospitals, infant mortality rates, and deaths due to cardiovascular disease, cirrhosis, suicide, and homicide. However, the results are sensitive to the choice of samples, estimation methods, and time periods. In fact, recent work that controlled for many of these problems has produced the surprising result that most types of fatalities exhibit a procylical variation. It is obvious why some kinds of mortality (e.g. motor vehicle fatalities) rise during expansions but less apparent why deaths from disease are also procyclical. The primary current explanation is that time is an important input into the production of health, and that such investments become more difficult to undertake during cyclical upturns, since individuals are working more hours and possibly with greater intensity. There are at least two reasons why this interpretation might be incorrect. First, fatality rates are an imperfect proxy of health and other aspects of health could improve when the economy strengthens. Second, there has been little research examining whether individuals change their behavior and health investments in the hypothesized manner. This project will address these concerns by using microdata to examine the following four questions. First, do direct measures of health (other than mortality) decline in economic expansions and improve during contractions? Second, are risky activities such as smoking and drinking reduced when the economy falters? Third, do healthy behaviors requiring substantial time investments, like exercise and the use of preventive medical care, rise when the economy reaches the low point in the cycle? Fourth, do these patterns vary with the duration of the change in economic conditions? The analysis should provide fairly definitive information on whether health really does improve when the economy deteriorates or, alternatively, show if the earlier results reflect limitations in the method of analysis or are restricted to specific aspects of health. The findings of this project will be important because substantial previous research examining the relationship between health and economic conditions has yielded inconclusive results. They will also be of more general interest because they will increase our understanding of the role of time in producing health. This latter issue is relevant for a variety of policy questions (such as the health effects of rationing medical care by time costs rather than price or the impact of increased female employment on the health of young children) and constitutes a broader future research agenda.
