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The Psychological Toll of Recession

How might a second recession impact our psychological well-being?

Volatility in the financial markets and discouraging economic news over the past several months has stoked fears that the American economy is heading towards a second "double-dip" recession. Financial analysts interviewed by the New York Times pegged the odds of a new recession at 40 percent. This possibility has led people to discuss the implications of a second recession for individuals and families. One of the lesser discussed impacts of a recession, and the focus of this post, is the psychological toll that recession often takes on many of those who are affected. What are the some of the ways in which a recession can impact our psychological well-being?

Financial Insecurity

An economic recession can lead people to feel more insecure about their financial situation. Financial insecurity is a form of chronic stress that increases risk for psychological distress. The series of events leading into a recession can be especially distressing for older adults who see their savings accounts dwindling as they are planning for retirement. A study of older adults in Australia following the recent Global Financial Crisis found that those who were personally impacted by the economic slowdown, which began in 2008, reported increased symptoms of depression and anxiety, and poorer self-rated health. Interestingly, the researchers discovered that the most pronounced change in symptoms occurred as the crisis was winding down in 2009 and 2010. This suggests that the personal consequences of a recession might take time to "filter through" and become apparent, affecting psychological well-being years after the initial downturn.

It is also possible that, during the most acute period of the recent financial crisis, extensive news coverage and public consciousness of the events has a protective benefit for people by fostering a collective social awareness. When "everyone is suffering" it might be easier to manage one's own level of stress. However, if someone is still feeling the effects of a recession as the financial markets start to recover, reduced social awareness of the crisis could increase perceptions of being uniquely adversely affected by the events.


One of the most salient factors linking economic recession to psychological distress is unemployment. Job loss has a powerful negative effect on psychological well-being. Those who lose their jobs tend to report increased anxiety, depression, and somatization. Unemployment has a profound influence on our sense of identity. Jobs can be a source of prestige and social recognition, a basis for our evaluations of self-worth. When someone loses their job, they also lose the social status that the job provided. This places them at greater risk of facing stigma and discrimination, both of which are linked to psychological distress.

Although the negative psychological effects of unemployment can largely be reversed by reemployment, the type of job that one takes upon re-entry to the labor market still matters. An often invisible counterpart to unemployment is underemployment, whereby people take positions for which they are over-qualified. Underemployment can be especially stressful for recent college graduates, whose career ambitions might be postponed while they take temporary lower-skilled jobs to pay bills like student loan debt. A few studies have shown that working a poor, low-paid job can be more detrimental to psychological well-being than being unemployed.

Is There a Positive Side?

An economic recession can lead to greater psychological distress for any number of reasons. However, there might be a positive side to a downturn. Some have speculated that recessions can lead people to make positive changes in their lives that have a beneficial effect on health and well-being. For instance, those who engage in excessive behaviors during good economic times (e.g. drinking alcohol or eating out in restaurants) might be forced to scale back when the economy takes a turn for the worse, possibly substituting healthier lifestyle behaviors like exercise.

Suggested Reading

Sargent-Cox, K., Butterworth, P., & Anstey, K. J. (2011). The global financial crisis and psychological
health in a sample of Australian older adults: a longitudinal study. Social Science & Medicine, 73, 1105-1112.

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