Poster Paper: The Financial Crisis, Subjective Well-Being, and Vulnerability

Saturday, November 9, 2013
West End Ballroom A (Washington Marriott)

*Names in bold indicate Presenter

Soumya Chattopadhyay, University of Maryland; The Brookings Institution
The global financial crisis in 2008-2009 and the subsequent global economic recession affected the welfare and well-being of billions of individuals worldwide. While the losses in income, wealth, and jobs are quantifiable and well-documented, this paper is based on the burgeoning literature and methodology of well-being economics to evaluate the relatively obscure but significant subjective well-being effects of this macroeconomic shock. Using the Gallup World Poll and the Gallup Healthways Survey (for the United States) I rely primarily on individual responses to the Cantril Ladder of Life question to empirically assess respondents’ subjective well-being (SWB) through this economic downturn. Both the global survey and the US survey have nationally representative samples: the global survey spans 160 countries annually and about a thousand respondents in each country each year, the latter polls a thousand respondents within US every day.

From a global perspective I find that the respondents’ SWB declined in countries that experienced economic downturns. Secondly, these losses in SWB were slightly more pronounced in countries that were more integrated to the global economy. And finally, within recession-hit countries, the “middle group” cohort (that closely mimics common notions of middle class) suffered disproportionately larger losses of SWB when compared to the rest of the population – both within US and globally. I use standard regression specifications with additional data from the World Bank World Development Indicators 2012 and the KOF Globalization Index.

These results have implications for our conventional assumptions about which cohorts in society are now most vulnerable to a global recession, and provide insights that are not captured by standard economic measures of income or wealth. Changes in the economic and social landscape have resulted in the middle sections of the society being more deeply interdependent on the global economic forces – exposing this cohort to macroeconomic turbulence more than ever before. This group may not have lost more than the others – the affluent or the poor – in income or wealth or access to means of basic subsistence. But their increased exposure to the economic conditions and the uncertainty that went with it does seem to have rendered them most vulnerable to a loss in the lifestyle they had been accustomed to. Ineligibility to means-tested government support programs to ameliorate their conditions compounds their conditions. This is reflected in their disproportionately larger decline in the individual perception of well-being.

These results indicate new challenges in the public policy discourse. It begs a revisit of the doctrine of pursuing greater global integration as means to stimulate economic growth and development as an established development strategy – when contagion effects of macroeconomic shocks have now been revealed to have deep and lingering microeconomic impact. Secondly it ought to force policy makers to broaden the metrics and strategies they use when devising support mechanisms to mitigate the hardships from economic downturns. The existing means tested interventions bypass a whole segment of the population who may be in dire and growing need of support.