MitchellMusings 1-3-11

Mitchell’s Musings 1-3-11 Happy New Years to all. As 2010 closed, the NBER working paper abstracted below crossed my desk.

First, take a look at the abstract. Then I will muse about it and related phenomena and what might be implied.

How Does the Business Cycle Affect Eating Habits?

Dhaval M. Dave, Inas Rashad Kelly - working paper #16638 (HE) Abstract: As economic expansions raise employment and wages, associated shifts in income and time constraints would be expected to also impact individuals' health. This study utilizes information from the Behavioral Risk Factor Surveillance System (1990-2007) to explore the relationship between the risk of unemployment and the consumption of various healthy and unhealthy foods. Estimates, based on fixed effects methodologies, indicate that a higher risk of unemployment is associated with reduced consumption of fruits and vegetables and increased consumption of "unhealthy" foods such as snacks and fast food. In addition to estimation of the average population effect, heterogeneous responses are also identified through detailed sample stratifications and by isolating the effect for those predicted to be at highest risk of unemployment based on their socio-economic characteristics. Among individuals predicted to be at highest risk of being unemployed, a one percentage point increase in the resident state's unemployment rate is associated with a 2-8% reduction in the consumption of fruits and vegetables. The impact is somewhat higher among married individuals and older adults. Supplementary analyses also explore specific mediating pathways, and point to reduced family income and adverse mental health as significant channels underlying the procyclical nature of healthy food consumption. http://papers.nber.org/papers/W16638 === We all expect that unemployment – as a Bad Thing in itself – will have adverse consequences. But whether we could say a priori that we knew it would lead to poor nutrition in the sense of excess fast food, is another matter. If the opposite result were found, we could easily rationalize it as fast food being a luxury item that could be dropped from consumption. Or we might just expect reduced caloric consumption of all types of food as consumption generally fell.

One of the enduring puzzles in the social sciences is that the relation of unemployment to crime is elusive. We might expect, a priori, that crime would go up as the unemployment rate rose. And we could tell stories – if it were so - about desperate people doing things they would otherwise not do.

In a cross-sectional sense, it is likely that in any urban area, poor neighborhoods (which typically exhibit higher unemployment rates than others), will have higher crime rates, particularly the violent types of crime that make the TV news. But in a time-series sense, there is no clear cut relation between crime rates and the business cycle.

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The Los Angeles Times recently ran a story about the (puzzling) falling crime rate in LA (where the unemployment rate is above the national average). But the phenomenon of falling crime is national.

Not only in that article, but in other stories on crime, experts were asked for explanations. And, of course, they had stories to tell. Sometimes, however, they cited city-specific explanations, e.g., some kind of local policing innovation, which did not explain why the same trend would be seen in other cities.

These tales of falling crime brought to mind a former colleague of mine – Eric Monkkonen of the UCLA History and Public Policy Departments – who died in 2005. Monkkonen was an historian who studied murder. He developed time series of murder rates in diverse cities. In a talk he gave at UCLA, however, while he documented waves of rises and falls in murder rates, he suggested that social scientists really don’t have consistent explanations across time.

You can find ad hoc stories in the labor relations literature about why unionization rates - and labor unrest more generally - rose during the Great Depression. Generally, scholars point to worker anger about the collapsed economy and related job conditions or to legal developments such as the Wagner Act (which actually was passed after the rise began). If the same folks are asked why we don’t see a similar trend during the Great Recession, undoubtedly there are stories to be told about a less friendly legal environment or about the cushioning effect of the remains and progeny of the New Deal’s “safety net.” But perhaps it is wise to acknowledge that the really don’t know exactly why the Great Depression produced rising unionization. It certainly was not predicted by observers at the time.

Similarly, in the late 1960s, there was a wave of strikes among unionized workers. Was it due to rising Vietnam-era inflation? Was it due to the very low unemployment of that period (the opposite of the Great Depression!)? Or was it the blue-collar version of the student rebellion on college campuses of that period – baby boomers angry at “the establishment”?

Overconfidence in what we know about social phenomena can lead us into trouble when it comes to policy. The Obama economists were sure that unemployment would not rise to the 10% level - but it did. However, they had to forecast using models based on data that did not include the kind of financial collapse that had occurred in 2008. Overconfidence in the models led to both economic and political consequences that the forecasters surely would now regret.

So for a New Years’ resolution, perhaps a bit more humility would be in order. Here at EPRN, we strive to provide the best research we can about labor-market topics. But even with the best research on hand, we can never be truly sure. From a policy perspective in an uncertain world, it is always advisable to have a Plan B available – just in case we are wrong.

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