Background: Health-related quality of life refers to an individual's perceived physical and mental health and goes beyond the presence or absence of illnesses to encompass a multidimensional concept of well being. Previous research on the relationships between macroeconomic conditions and health status reveal improvements in physical health during economic downturns. However, few studies have examined whether mental health status improves or declines during tough economic times.
Aims: The main objective of this paper is to provide new evidence on the impact of macroeconomic conditions on Health-related quality of life (HRQL), or functional health, by analyzing the physical and mental health summary scores of the 12-Item Short Form Health Survey (SF-12).
Data: The analysis uses panel data from Waves 1 and 2 of the National Epidemiological Survey of Alcohol and Related Conditions (NESARC) for individuals 18-59 years (in Wave 1), for a final sample of 26,313 individuals. The NESARC collected and reported data on the SF-12 health scores, including a physical health score (PCS) for overall physical functioning, and a mental health score (MCS) for mental/psychological functioning. To analyze the impact of economic downturns on HRQL, the study matches the NESARC variables with data on state-level macroeconomic conditions.
Methods: To estimate the effects of macroeconomic conditions on HRQL, this paper takes advantage of the longitudinal nature of the dataset and uses individual fixed-effect models to account for both individual and state-level heterogeneity. Although it is unlikely for individual omitted variables (e.g., individuals' preferences and attitudes) to be significantly correlated with the state unemployment rate, using longitudinal data allows for the estimation of a more fully specified model.
Results: Findings consistently indicate that an increase in the average state unemployment rate worsens an individual's HRQL, suggesting that the loss of jobs and income and/or the economic distress associated with economic downturns have a detrimental effect on people's daily lives. Although the magnitudes of the changes are generally small, results show that mental health decreases more than physical health during tough economic times.
Policy implications: With the recent worldwide economic recession causing steep drops in the U.S. Gross Domestic Product along with double-digit unemployment rates, the implications of this study are disheartening. Besides macroeconomic policies to help stimulate the economy, government officials and policymakers should also consider social policies to help people cope with the recession and buffer the potential negative health impact, both mental and physical. Moreover, policymakers should keep in mind that the mental health effects might be greater and longer lasting.