Great Recession

Our partner website, Recession Trends, has published a report on how the Great Recession has impacted neighborhoods in America. Here is an excerpt:

Although most research has focused on individual-level outcomes, many of the conventional narratives about the Great Recession are in fact neighborhood-level narratives. In discussing the housing crisis, for example, we don’t just focus on individuals facing foreclosure but on entire neighborhoods that were hard hit by the housing crisis, where one can find house after house on the same streets all in foreclosure. Likewise, the unemployment crisis is often understood to be spatially clustered, with areas that depend disproportionately on construction, manufacturing, and other heavily-affected industries typically presumed to be especially hard hit.

The Urban Institute has released a report that analyzes the Great Recession's impact on the racial wealth gap in America. Here is the abstract:

Income inequality understates the size of the economic gap between whites and minorities in the United States. In 2010, whites on average had two times the income of blacks and Hispanics, but six times the wealth. Analyses of wealth accumulation over the life cycle show that the racial wealth gap grows sharply with age. Wealth isn't just money in the bank, it's insurance against tough times, tuition to get a better education and a better job, savings to retire on, and a springboard into the middle class.

The study shows that the 2007-2009 downturn sharply decreased the wealth holdings of white, black and Hispanic families, with Hispanics experiencing the largest decline:

Like a lot of young families,many Hispanic families bought homes just before the recession. Because they started with higher debt-to-asset values, the sharp decline in housing prices meant an even sharper cut in Hispanics’ wealth. As a result, they were also more likely to end up underwater or with negative home equity. Between 2007 and 2010, Hispanics saw their home equity cut in half, compared with about a quarter for black and white families.

In contrast, black families lost the most in retirement assets, while white families experienced a slight increase. On average, blacks saw their retirement assets fall by 35 percent during the Great Recession,compared with a smaller(but still substantial) decline of 18 percent for Hispanic families.

With the support of the Foundation, Fabian T. Pfeffer, Sheldon Danziger and Robert F. Schoeni have published a working paper entitled, "Wealth Disparities Before and After the Great Recession." Here is the abstract:

The collapse of the labor, housing, and stock markets beginning in 2007 created unprecedented challenges for American families. This study examines disparities in wealth holdings leading up to the Great Recession and during the first years of the recovery. All socioeconomic groups experienced declines in wealth following the recession, with higher wealth families experiencing larger absolute declines. In percentage terms, however, the declines were greater for less-advantaged groups as measured by minority status, education, and pre-recession income and wealth, leading to a substantial rise in wealth inequality in just a few years. Despite large changes in wealth, longitudinal analyses demonstrate little change in mobility in the ranking of particular families in the wealth distribution. Between 2007 and 2011, one fourth of American families lost at least 75 percent of their wealth, and more than half of all families lost at least 25 percent of their wealth. Multivariate longitudinal analyses document that these large relative losses were disproportionally concentrated among lower income, less educated, and minority households.

Supported by our Great Recession initiative, economist Robert A. Moffitt has released a working paper that investigates the performance of the social safety net during the Great Recession. Here is the abstract:

The social safety net responded in significant and favorable ways during the Great Recession. Aggregate per capita expenditures grew significantly, with particularly strong growth in the SNAP, EITC, UI, and Medicaid programs. Distributionally, the increase in transfers was widely shared across demographic groups, including families with and without children, single parent and two-parent families. Transfers grew as well among families with more employed members and with fewer employed members. However, the increase in transfer amounts was not strongly progressive across income classes within the low-income population, increasingly slightly more for those just below the poverty line and those just above it, compared to those at the bottom of the income distribution. This is mainly the result of the EITC program, which provides greater benefits to those with higher family earnings. The expansions of SNAP and UI benefited those at the bottom of the income distribution to a greater extent.

With the Foundation's support, the Urban Institute has published a report on the stagnating levels of wealth among younger Americans. Entitled "Lost Generations? Wealth Building Among Young Americans," the study shows that, contrary to historical wealth accumulation patterns, Americans under 40 are not richer than previous cohorts:

As a society gets wealthier, children are typically richer than their parents, and each generation is typically wealthier than the previous one at any given age. For example, near peak wealth accumulation in their mid-50s to mid-60s, those born in 1943–51 are wealthier than those born in 1934–42, who are wealthier than those born in 1925–33. This pattern does not hold for the younger among us. People born starting in 1952 no longer find their wealth above the prior cohort by 2010. Nor is the most recent 1970–78 cohort’s average above prior cohorts. Younger cohorts’ average wealth is simply no longer outpacing older cohorts.

Looking at it another way, 65- to 73-year-olds today have far more wealth than 65- to 73-year-olds did in 1983. More generally, the net worth of those 47 and older is roughly double that of someone the same age 27 years earlier. Today’s adults in their mid-30s or younger—the prime time for career and family formation—benefited little from the doubling of the economy since the early 1980s and have accumulated no more wealth than their counterparts 25 years ago.

In an interview with the New York Times, Signe-Mary McKernan, one of the study's authors, explained the implications of this worrying trend:

Strong and sustained job and wage growth would cure many of the ills facing younger workers, experts said. But their delayed or diminished wealth accumulation might still have a lasting impact on their finances.

“It’s a little bit of a tipping-point moment,” said McKernan. “If we don’t address it today, they might never catch up.”

For instance, the researchers said, if a person delayed the purchase of a home to age 40 instead of buying at age 30, that might result in a $42,000 loss in home equity by the time she reaches 60, given trends in wealth accumulation over the past few decades.

As part of our Great Recession initiative, Alicia Munnell and her colleagues at the Center for Retirement Research at Boston College have published a new report on state and local pension plans in the aftermath of the 2007 financial crash. Here is the abstract:

State and local governments have been facing an extraordinarily difficult fiscal environment in recent years. One of many challenges has been restoring public pension plans to a sound fiscal footing after the economic crisis of 2007-09. States have begun to respond by enacting a mix of revenue increases and benefit cuts. These changes will, over time, improve the financial outlook for plans and help ease their impact on other budget priorities. This study analyzes the nature and magnitude of these effects by analyzing pension costs before the financial crisis, after the financial crisis, and after reforms for a sample of 32 plans in 15 states. The results show that most of the sample plans responded with significant pension reforms, generally increasing employee contributions and lowering benefits for new employees; the changes were largest for plans with serious underfunding and those with generous benefits; in most cases, reforms fully offset or more than offset the impact of the financial crisis on the sponsors’ annual required contribution; and employer contributions to accruing benefits for new employees were cut in half, sharply lowering compensation for future workers. In short, states have made more changes than commonly thought. Whether these changes stick or not is an open question.

The Society Pages, an online hub of sociology research, recently featured RSF's new website Recession Trends:

There are many ways you could use this informative website in the classroom. For example, you could ask students to form a research question about the recession (e.g., Did crime rates rise during the recession?) and use the website to help answer it. Specifically, the website includes a graphing utility with data on each of the 16 domains covered regarding the recession (housing, poverty, immigration, crime, health, etc.). The graphing utility is found here, and the domains are listed on the right-hand side. Note that students likely would need a few minutes to explore the domains before picking a research question that could be answered using the website.

Here are links to some of the interesting social science research we encountered during the week:

The Fall 2012 issue of Pathways, a magazine produced by the Stanford Center on Poverty and Inequality, features several RSF-funded briefs on the social fallout of the Great Recession. The reports are part of the Foundation's Great Recession initiative, which has funded more than two dozen projects in the last two years that will assess the effects of the Great Recession on the economic, political, and social life of the country.

Here are brief descriptions of the articles in Pathways:

Douglas S. Massey: The Great Decline in American Immigration?

Immigration has been a major component of demographic change in the United States over the past several decades, constituting at least a third of U.S. population growth and up to half of labor force growth in any given year. By any standard, it is a central feature of the nation’s political economy and thus especially important to monitor as the Great Recession plays out. This brief reviews levels and patterns of immigration to the United States over the past three decades, with a particular focus on their implications for the nation as it recovers from the worst economic downturn since the 1930s.

Christopher Uggen: The Crime Wave That Wasn't

This brief review of statistics before and since the Great Recession’s onset provides clear evidence for a decline in crime from 2007 to 2010. It also shows a consistent, albeit less steep, drop over that period in most correctional populations. To date, then, there is little evidence that great numbers of people have “turned to crime” in response to economic recession.

Sarah Burgard: Is the Recession Making Us Sick?

We pose the following questions: Is the recession lowering the aggregate level of physical well-being in the U.S.? Is it lowering the aggregate level of mental wellbeing? How has access to health care changed, if at all, with the recession?

S. Philip Morgan, Erin Cumberworth, and Christopher Wimer: Sheltering the Storm: American Families in the Great Recession

The decision to have a baby, to form or end a union, and to return to the nest are all family behaviors that might be sensitive to economic downturns. Is the recession indeed changing the family? And are "red" and "blue" families reacting differently?

As part of our Election 2012 series, Lindsay Owens and David S. Pedulla examine the effects of the economic downturn on political attitudes. Owens, a graduate student at Stanford University, contributed to the RSF volume The Great Recession. Pedulla is a graduate student in sociology at Princeton University.

As Americans head to the ballot box, they will no doubt consider whether Obama or Romney will be better able to stimulate our sluggish economy. People were hit hard by the Great Recession and the aftershocks of economic distress are still forceful in the lives of individuals, families, and communities across the country. How will these economic hardships influence the choices that voters make at the ballot box in the upcoming election? While only time will be able to answer this question definitively, below we present findings from some of our research that hints at some possibilities for how economic hardship may (or may not) influence the political attitudes and voting behavior of the American electorate.

In research for the Russell Sage Foundation’s edited volume The Great Recession (2011), Owens (with her co-author, Lane Kenworthy) examined whether a variety of political and social attitudes change during and after economic recessions. On the whole, the findings from this study suggest that recessions do not seem to produce lasting shifts in Americans’ attitudes in the aggregate (Kenworthy and Owens 2011). They found little evidence of a “recession effect” on perceptions of fairness and opportunity in the economy, interests in helping the poor, confidence in government, or beliefs about the proper role of the government in regulating the economy. And, the changes that do occur tend to be temporary, reversing when the economy begins to recover. Given these macro-level findings, we might expect that the current economic situation will not affect political attitudes in any significant ways.

Attitudes Toward The Financial Sector

Although we have not seen wholesale shifts in political attitudes due to the recent recession, there are a few areas where attitudes have changed. Americans’ favorability toward banks and financial institutions has reached at least a forty year low. And, drawing on data from the The Gallup Poll and Pew Research Center for the People and the Press, Owens (2012) finds that Americans’ attitudes toward the ethical practices of bankers and Wall Street stockbrokers are at historic lows. Social scientists don’t usually think these types of political attitudes matters in elections. But there is reason to think this election might be different. Republican Presidential candidate Mitt Romney has strong ties to the financial sector. In particular, he was a founding partner of Bain Capital, a large private equity investment firm. The Obama campaign has certainly seized upon Romney’s connection with such an unpopular industry, running a variety of ads linking Romney to Bain Capital and in particular highlighting Bain Capital’s role in outsourcing jobs overseas. Although there is little evidence that these ads have had a lasting negative impact on Romney’s favorability, his ties to Bain Capital are certainly not an asset given the shift in Americans’ attitudes towards the financial sector. The upshot is that Americans’ overwhelming negativity toward financial institutions and those individuals who work in them may pose a problem for the Romney campaign.