The Economic Downturn Takes Its Toll on Well-Being

The usual economic data make it clear that the current downturn is causing financial pain. And now, thanks to an amazing new collection of data, we can also track the effects of our current recession on subjective well-being.

Since the start of this year, the good folks at Gallup have partnered with Healthways to create a new Well-Being Index. Every day, Gallup polls 1,000 Americans, asking a variety of questions about their subjectively experienced lives. These new data provide our first opportunity to track the national mood in such detail, presenting an amazing opportunity for researchers.

Let’s focus on responses to the ladder of life question:

Please imagine a ladder with steps numbered from zero at the bottom to ten at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?

The survey also asks about where you expect to stand on this ladder in five years. Answers to these two questions are combined to yield estimates of the proportion who are “thriving” (those on rungs seven or higher, who also expect to stand on rung eight or higher in five years), versus those who are “suffering” (people currently on rungs zero to four, who also expect to be in the same range in five years).

Those in between are termed “struggling.”

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Whatever you call these categories, there was a sharp decline in well-being during the financial decline, which followed a slow downward drift in the first part of 2008 as the economy slowed. The national mood has yet to hit a trough, and the post-election numbers don’t show any bounce.

All told, the proportion of the U.S. population that is “thriving” has fallen from around 50 percent to around 35 percent. Is this a big decline? While there are caveats involved in contrasting time-series and cross-country assessments, the following chart provides some context.

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A decline in well-being this big is roughly similar to the sort of decline you might see if average incomes declined by about a half.

That’s huge. Yep, this recession really is hurting.

Related research: Miles Kimball, Helen Levy, Fumio Ohtake, and Yoshiro Tsutsui on the unhappiness following Hurricane Katrina; Rafael Di Tella, Robert MacCulloch, and Andrew Oswald on happiness and the business cycle; and my own work on happiness and macroeconomic volatility.

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  1. Peter says:

    Much of the suffering surely is psychological rather than practical. Most people haven’t lost their jobs and don’t face huge mortgage interest rate increases. High gasoline prices may have hit almost everyone, but they’re on the decline. The problem is, however, when you constantly hear about how tough times have become, you feel like things are bad for you even if they really aren’t.

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  2. Jamie says:

    I pulled a screenshot of the “Thriving” chart above and viewed it side by side with a YTD Chart of the Dow. To my eye they look strongly correlated. I wonder if the numbers would agree?

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  3. Rob says:

    One day people will stop using the word “personally” when they don’t need to. And personally I think that will be a great day, personally.

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  4. a broke, unemployed, web-surfer says:

    Ahhh….I can’t even see the ladder

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  5. Matt says:

    I agree, in part, with Peter. I realized when I started my morning by looking at the business section of my newspaper, the day would seem much more bleak. I’ve discontinued this practice since I believe much of what I’m reading (aside from client’s companies struggling, therefore my company struggles) does not apply to me.

    That being said, the parts that did apply to me added more stress to what I was already experiencing during the day: job related stress (getting projects complete, client complaints, etc.) and life related stress (friendships, relationships, family matters, etc.). All of this compounding on a daily basis can really take its toll. Many people have a hard time dealing with this stress, and don’t seek out help.

    I believe the graphs are accurate and realistic.

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  6. Jeff says:

    “A decline in well-being this big is roughly similar to the sort of decline you might see if average incomes declined by about a half.”

    Or, if you moved to Singapore

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  7. DJH says:

    Peter (#1) has a point about the problem being largely psychological. If the economy suddenly swung back upward today, I’d say that people’s worrying was largely unnecessary, and out of proportion with the facts.

    But we aren’t out of the hole yet. At least some of the worrying may, in fact, turn out to have some merit. Many companies and most of the states still face financial problems; jobs may yet be lost that appear now to be solid, services the states had once provided may be curtailed or cut, and people who are prospering now may end up economically harmed within the next few months.

    So while there may be something to the idea that people’s fears are irrational, we don’t yet know this to be the case. The next year will tell us for sure.

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  8. BSK says:

    How much of people’s sense of their own well-being is a result of people yelling CRISIS!!! every thirty seconds? I do not mean to downplay those who have been directly effected in a meaningful way, but what percentage of people have ACTUALLY been meaningfully effective by the recent downturn? I know that I have not been in any way that I would say has discouraged my outlook.

    Also, I think it would be interesting to see people’s sense of their own well-being compared to their actual place in the financial hierarchy. It seems as if the people who often complain the most happen to be those who have the most.

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