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The Social and Economic Effects of the Great Recession

Originally launched in December 2010, the Russell Sage Foundation’s initiative assessing the effects of the Great Recession on the economic, political and social life of the country is now closed. The Foundation made thirty project awards in several funding rounds in 2011 and early 2012. Descriptions of those projects and awards can be found here.

Officially over in 2009, the Great Recession is now generally acknowledged to be the most devastating global economic crisis since the Great Depression. But while volumes of grim economic data may be readily available, we know comparatively little about the recession’s long-term social significance. Prolonged economic stagnation will likely transform the American institutions and society, just as Great Depression once did. How will the current U.S. population, raised in a period of sustained prosperity and consumption, respond to hard times? How will American political attitudes and institutions adapt?

To answer these questions, the Russell Sage Foundation launched a major research initiative that examines the social effects of the Great Recession across a broad swath of America’s social and economic life. Since 2010, the Foundation has awarded over $2 million to fund a battery of projects -- many that go beyond a simple description of trends to examine some unanticipated implications of the downturn. Deploying a variety of methods and datasets, a distinguished team of scholars will investigate many of the vexing and often unprecedented policy problems posed by the economic disruption, including the following:

Why has the labor market been so slow to recover?

Since World War II, employment has generally recovered within two or three years of a recession. But even three years after the Great Recession’s onset, unemployment still hovers above 9 percent. To explain why this downturn was different, Erling Barth, James Davis and Richard Freeman will analyze the recession at the level of firms and establishments. Have shifts in global competition, wage dispersion and executive compensation set a new pattern for labor cuts during downturns? Does the lag in the recovery reflect a temporary lack of consumer confidence and funds, or a structural mismatch between workers’ skills and employer needs?

Another project, led by economist Till von Wachter, engages a fundamental debate in economics on the consequences of recessions. Do recessions represent lost output when labor and capital are underutilized, or do downturns have a ‘cleansing effect’ that moves labor and capital to more productive firms and industries?

How has the budget crunch affected K-12 education?

According to the New York Times, at least 23 states have made cuts to their education budgets this year, forcing districts to adopt cost-saving measures like bigger class sizes and fewer extracurricular activities. To systematically track these spending cuts and their consequences, economists William Evans and Robert Schwab will use several data sets to understand what kinds of cuts have been made, what effect they had on educational quality and whether poorer school districts were affected more than wealthy ones. Have innovative efforts to improve educational efficiency, such as pay for teacher performance, been abandoned? How have teachers’ pensions been affected?

Why did political sentiment move right during the recession?

In the 50 years after World War II, popular support for government spending on the social safety net typically increased during recessions. But over the past two years, polls suggest support for income transfer policies has slightly decreased. To analyze this anomaly, political sociologists Jeff Manza and Clem Brooks will conduct a comprehensive study of political opinion shifts during the Great Recession. Can the shift be explained by public confusion, political polarization or concern about high deficits? Or has the public lost a basic capacity to respond to macroeconomic change in a meaningful way?

How well did the work-based safety net perform during the recession?

Fifteen years ago, amid tight labor markets and strong economic growth, President Bill Clinton signed legislation that created lifetime caps for the receipt for welfare and made support contingent on employment. Now, with jobs hard to come by and poverty on the rise, has the American safety net become less effective? Using data from the Survey of income and Program Participation, Robert Moffitt will detail the contributions of each safety net program and compare the system’s performance in this recession to that in past recessions both before and after the passage of welfare reform. If an extended period of high unemployment is on the horizon, is it time once again to restructure welfare?

Other studies in RSF’s Great Recession initiative also aim to catalog the deeper, more subtle effects of the Great Recession on social norms, household budgets and family life. How will the burst of the housing bubble, for example, affect household behavior on debt repayment, retirement and financial transfers to family members? Will unemployment and the loss of family income lead to changes in family patterns and parental time-use? Which groups were most affected by the loss of wealth since 2007 and will the downturn cause fundamental changes in financial behavior?

Taken together, the approved projects reflect the broad and profound impact of this economic crisis. Results and data will be posted on a new website designed to become a clearinghouse for high-quality social science information about the longer-term consequences of the Great Recession. As social trends develop over time, the Foundation will commission new projects and attempt to fully catalog this seminal and disruptive moment in American life.