Working Papers: All

The surge in unemployment that accompanied and followed the Great Recession - the economic downturn that began in December 2007 and lasted until June 2009 - did not spare either younger or older workers. Nonetheless, age affected how workers fared during the slowdown. Layoffs were less common among older workers who had many years of service with their employers than among their younger counterparts who had less seniority, but older adults took longer to find work when they lost their jobs. Wage losses were especially steep for unemployed workers in their fifties who became reemployed.

Though the great recession has had the most severe overall effect on state tax revenues of any downturn since the Great Depression, impacts varied widely across states. Tax revenues were affected through two different channels. The first is due to the collapse in realized capital gains income following the sharp decline in the stock market. State tax bases are affected in proportion to pre-recession reliance on capital gains income, in turn closely associated with the degree of income concentration. Largely due to capital gains income, the income of high-income taxpayers is more cyclically sensitive than that of lower-income taxpayers. The second channel, the differential effect on state output and employment, has its greatest impact on incomes below the top 5 percent of the distribution. We hypothesize that variation in revenue impact across states is due to differences in the severity of the income shocks at different levels of income, the degree of income inequality, the importance of capital gains in top incomes, and the level and progressivity of tax burdens. Progressive states are likely to be more vulnerable to revenue losses in economic downturns. Progressivity and income volatility may interact to amplify the recession’s fiscal impact.

During the Great Recession, more older workers have claimed Social Security benefits early. This paper addresses two important policy questions: Who are these early claimers? How much retirement income have they lost as a result of claiming early? Using the Health and Retirement Study (HRS) we estimate a discrete-time hazard model that makes claiming Social Security benefits a function of age, personal characteristics, and the national unemployment rate. We project that high unemployment rates during the Great Recession led to a 5-percentage-point increase in the probability of claiming early relative to a less severe recession such as the 2001-2003 downturn, and this increase was nearly uniform across socioeconomic groups. Our estimates also suggest that while the Great Recession did impact the claiming decision, it did not cause a dramatic change in benefits. “Great Recession Claimers” – those whom we simulate were likely to claim early during the Great Recession but would not have in a milder downturn – filed for Social Security only 6 months earlier, on average, than they would have in a minor recession. This modest change in timing reduced their monthly Social Security benefit checks by $56, or 4.6 percent of average monthly benefits, and the Social Security replacement rate fell by 1.7 percentage points relative to a more typical recession. The benefit reduction resulted from the combined effect of the actuarial reduction for early claiming and the foregone opportunity to continue working and increase the wage base used for calculating benefits.

How do sudden, large wealth losses affect mental health? Most prior studies of the causal effects of material well-being on health use identification strategies involving income increases; these studies as well as prior research on stock market accumulations may not inform this question if the effect of wealth on health is asymmetric. We use exogenous variation in the interview dates of the 2008 Health and Retirement Study to assess the impact of large wealth losses on mental health among older U.S. adults. We compare cross-wave changes in wealth and health for respondents interviewed before and after the October 2008 stock market crash. We find that the crash reduced wealth and increased depressive symptoms and the use of anti-depressants. These results suggest that sudden wealth losses cause immediate declines in mental health; for example, a loss of $50,000 of non-housing wealth increases the likelihood of feeling depressed by 1.35 percentage points, or by 8%.