Recession adversely affects mental health and has considerable negative impacts on the careers of young labor market entrants

Two timely reports now published on IZA World of Labor deal with the effects of recession on health and on the careers of young labor market entrants

In a grim assessment of the UK economy after the vote for Brexit, the National Institute of Economic and Social Research (NIESR) said 320,000 jobs would be lost by the third quarter of next year and warned that the economy had a 50% chance of slipping into recession in the next 18 months. Therefore, politicians should consider now the potential effects of a recession and initiate adequate policy responses. Two new reports just published on IZA World of Labor provide guidance:

Economist Nick Drydakis of Anglia Ruskin University, UK, finds that recessions have negative effects on mental health and lead to an increase in suicides. This results from loss of employment, fear of losing one’s job, income reductions, loss of savings, foreclosure, and eviction. Indeed, unemployment and income loss severely frustrate the human desire for agency and self-directedness. In addition to this, high-risk lifestyle behaviors, such as smoking and alcohol consumption, typically increase during unemployment and after income loss. Moreover, income loss is expected to decrease investments in health-enhancing goods, and can result in both poor physical and mental health. Several recent studies that focus on the Great Recession of 2008 and the EU financial crisis of 2009 verify the aforementioned pattern. Drydakis suggests that relevant welfare policies such as labor market programs, family support programs and minimum-income benefits, should be implemented in order to minimize the consequences of recession on people’s health.

Economist Bart Cockx of Gent University, Belgium presents the latest evidence that youths graduating in a recession incur permanent losses. According to a number of recent studies in the US and Europe, it takes about ten years for young cohorts that enter the labor market during a downturn to catch up with cohorts that did not. The negative impacts of a recession on the careers of young labor market entrants differ according to the flexibility of the labor market and the education level of entrants. In flexible labor markets, the short­term impact is particularly severe for low­educated youths, but the penalties are short­lived. College graduates are less penalized initially but the penalties last longer. In rigid labor markets, entering the labor market during a recession may cause less damage in the short­ term but may inflict permanent economic scars.

This evidence reveals that the cost of recessions can be significant and can last well beyond the immediate impact. Bart Cockx therefore suggests that policy reforms should aim to combine greater job flexibility measures with job security and social safety net provisions—“flexicurity.” Fostering geographic and job mobility would be key measures.

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Notes for editors:

• IZA World of Labor (http://wol.iza.org) is a global, freely available online resource that provides policy makers, academics, journalists, and researchers, with clear, concise and evidence-based knowledge on labor economics issues worldwide.
• The site offers relevant and succinct information on topics including diversity, migration, minimum wage, youth unemployment, employment protection, development, education, gender balance, labor mobility and flexibility among others.
• Established in 1998, the Institute for the Study of Labor (www.iza.org) is an independent economic research institute focused on the analysis of global labour markets. Based in Bonn, it operates an international network of about 1,300 economists and researchers spanning more than 45 countries.