Assessing the Impact of Severe Economic Recession on the Elderly Summary of a Workshop (2011) / Chapter Skim
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Assessing the Impact of Severe Economic Recession on the Elderly
Assessing the Impact of Severe Economic Recession on the Elderly
Pages 1-34
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The primary purpose of the workshop, held at the National Academies on June 10-11, 2010, was to help NIA gain insight into the kinds of questions that it should be asking, the research that it should be supporting, and the data that it should be collecting. Workshop participants considered the impact of the recession on the well-being and behavior of older adults, as well as implications for the rest of the population; potential research questions raised by the current recession and, going forward, recessions more generally; measurement and methodological challenges that confront scientific inquiry in this area; the potential for innovative research design; and future data collection efforts.
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In the first presentation, Carmen Reinhart observed that the current economic crisis has affected developed economies, including those of the United States, Europe, and Japan, in a way that has not been seen since World War II. International experience indicates that severe financial crises are protracted affairs and that not all markets recover at an equal pace.
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Survey respondents were asked about the subjective probability of a gain in the stock market both a year from now and 10 years from now. From November 2008 through May 2010, there was a modest increase in people's 1-year expectations of a gain but a decline in their 10-year expectations; 1-year expectations of personal job loss also did not improve over this period.
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The relatively large magnitudes of expected delay among those postponing retirement suggest both the severity of the current recession and that economic uncertainty may play an important role. In the general discussion that followed the presentations, it was noted that most of the subjective probabilities that surveys currently ask about -- regarding, for example, work, retirement, and the stock market -- were originally developed as part of the HRS in the early 1990s.
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as well as the portfolio choices and trading behavior of households before and throughout the crisis. The HRS includes expectation questions about issues such as longevity, inheritance, labor market prospects, retirement, and stock market returns.
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. They found that the subjective mean typically moved with stock prices -- with the exception of OctoberNovember 2008 (around the time of the market crash)
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Even so, the battery of financial sophistication items in the Cognitive Economic Study, which provides a quasi-objective measure of what people actually know, suggests that they have a fairly good idea of what they do and do not know; most people felt
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WORK, LABOR MARKETS, AND RETIREMENT Presenters Courtney Coile and Alan Gustman discussed aspects of work, labor markets, and retirement. According to Coile, since the beginning of the current economic crisis, the media and the public have focused on retirement delays that may result from plunging equity and housing markets.
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According to simulations, the net effect of the current crisis will be an increase in retirement, with approximately 250,000 people delaying retirement because of the stock market decline and 375,000 retiring early because of problems finding employment. The authors also found that fluctuations in housing prices do not affect retirement; Coile noted that this is consistent with work showing that households tend not to consume their housing wealth in retirement until they experience a shock, such as the death of a spouse or the entry of a family member into a nursing home (Venti and Wise, 2001)
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Do shocks have a differential impact by socioeconomic status? Several participants also raised the issue of labor market expectations and noted that the HRS asks people how difficult it would be, if they were to lose their job, to get a similar one.
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Gustman listed a number of analytical approaches for thinking about recession and retirement: descriptive analysis of dependent variables pertaining to retirement and the labor market; descriptive analysis of retirement intentions; reduced-form analysis with business cycle measures as independent variables and labor market outcomes as dependent variables; supply-side structural analysis that includes reoptimization in the face of recession; demand-side structural analysis, including demand-side responses to recession (which is complicated by long-term job attachment) ; and market-level analysis that joins supply and demand, determining the work of the older population in the long run and in the face of an economic downturn.
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, makes the prospect of international comparisons quite promising. He observed that if the recession has affected different countries differently, then a difference-in-difference approach would be promising for analyzing labor market impacts.
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The impact of these market outcomes on current retirees, those nearing retirement, and prime-age workers is summarized in Table 2. Madrian indicated that the nonhousing wealth that individuals use to fund their consumption in retirement has three primary sources: Social Security, defined-benefit pension wealth, and defined-contribution wealth.
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information on wealth but has few labor market variables and is not very helpful for retirement analysis. Firm-induced changes in Permanent layoff.
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Transfers to children, parents, bequests. NOTES: ALP = American Life Panel; CPS = Current Population Survey; HRS = Health and Retirement Study; SCF = Survey of Consumer Finances.
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16 TABLE 2 The Market Downturn: Who Is Affected and How Affected by Market Downturn Effects of the Market Downturn Current Retirees Nearing Retirement Prime-Age Workers Decline in home equity Affected Affected Less affected (because less likely to own homes) Decline in other wealth Affected Affected Less affected (because have less wealth)
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. There were significant declines in spending, even at the median; the fact that these surveys missed the largest declines in the stock market and housing prices implies that unemployment could be a continuing force for spending reduction.
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. Defined-benefit pension wealth Presumably little impact (1)
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potential to delay retirement to offset wealth decline; potential to (partially) offset wealth decline; change savings rate to (partially)
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Mean health care spending fell by approximately 35 percent among those below age 50, but it fell by less than 5 percent among those ages 50-64 and less than 10 percent among people ages 65 and older. Similarly, median health care spending fell by more than 50 percent among those below age 50, but it fell by less than 15 percent among those ages 50-64 and less than 10 percent among people ages 65 and older.
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There is an extensive literature that discusses the impact of economic recession on health, and much of this literature suggests that the effects may be harmful. For example, a macroeconomic study by Brenner (2005)
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Alley proposed six sets of questions raised by the recession. First, how much of what is reported during economic downturns as better health is due to reporting error?
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It is possible that health improvements at the population level mask health declines in population subgroups, leading to increased health disparities. How can this be best measured, and which population subgroups (e.g., those with limited financial assets, existing health conditions, or limited social resources)
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Ruhm (2000) found that a variety of physical health measures improved with unemployment, but that increases in state unemployment were associated with an increase in suicide and mental health disorders.
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The HRS also conducted a postcrash Internet survey in May and June 2009 and a mail survey on well-being in November and December 2009, providing further data on the effects of the crisis. The 2009 HRS Internet survey included information on consumer sentiment; positive and negative affect; satisfaction and control across a variety of domains; assets, ownership, losses, and rebalancing of investment portfolios; mortgage issues for self and family; consumption; employment and retirement expectations; and health behaviors.
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One participant commented that family insurance may also be important for mental health, as the "stress buffering hypothesis" in the sociology literature suggests that social support can be effective in buffering the effects of stress on mental health (see, e.g., Wethington and Kessler, 1986)
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For other parents, the increased need for cash transfers to their adult children may be a drain on their resources. Those nearing retirement who lost jobs and/or assets may reduce cash transfers, invest less in the schooling of children (which raises the question of whether grandparents make up any of the difference)
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The presentation by Linda Waite focused on the resources, demands, and environment associated with the living arrangements of older adults. Homeownership is high among older adults, and one of the obvious responses of younger adults affected by the economic downturn is to move in with them.
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HOUSING It was the increase in the foreclosure rate in the 2006-2007 period that ultimately led to the collapse of the subprime mortgage market and the current economic downturn, and two presentations at the meeting therefore 4 One participant noted that the HRS asks respondents whether they have access to the Internet and, if so, what they use it for. Many people say that they use the Internet to communicate with their children and grandchildren.
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. This has led to a growth in reverse mortgages, which allow elderly owners to turn home equity into current income.
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; the data set will be refreshed so that it remains a random sample. Equifax also created 10 years of history that allow the events leading up to the current crisis to be tracked by the FRBNY Credit Panel.
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and could be useful if they were reported frequently enough. Participants also discussed the potential for merging data sets with proprietary information such as mortgage and credit records.
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First, the 2007 wave of the Survey of Consumer Finances has been made into a panel, with reinterview information collected in 2009; the panel data will be made publicly available in early 2011. Second, the 2008 panel of SIPP began in fall 2008 to collect detailed information from the previous 4 months.
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