NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Growing up in a Recession

Individuals who grow up during recessions tend to form life-long beliefs, including that success in life depends more on luck than on effort.

In Growing up in a Recession: Beliefs and the Macroeconomy (NBER Working Paper No. 15321), co-authors Paola Giuliano and Antonio Spilimbergo substantiate the importance of the historical economic environment in shaping economic attitudes, affecting individuals' views of the role of government, and influencing whether those beliefs change later in life. One of the key findings of their study is that individuals who grow up during recessions tend to form life-long beliefs, including that success in life depends more on luck than on effort.

Individuals who grow up during recessions also tend to support more government redistribution, but they have less confidence in public institutions. On the whole, the authors find, orientations formed during difficult economic times can help to determine the economic system, institutional outcomes, and the role of the government across countries, although this study focused on the United States.

One of the strongest results from this research is the long-lasting effect of recessions on individuals' confidence in government and its role in society. For example, individuals have a significantly lower level of confidence in Congress and the executive branch of the federal government when they experience poor economic conditions while they are coming of age. But there are off-setting tendencies, too. "On the one hand, recession-hit individuals believe that the government should intervene more, so they lean more to the left. On the other hand, these individuals distrust institutions, believing them to be ineffective, therefore leaning more to the right." And, while recessions substantially decrease the confidence in government institutions, they do not appear to have an effect on the individual's level of generalized trust -- that is, his or her trust in others or other sectors of society.

The authors also report that individuals' propensity to distrust government institutions after macroeconomic shocks occur is highest when they are between the ages of 18 and 25. Although also possible between age 25 until roughly age 40, after that age people tend not to change their beliefs in response to negative economic shocks.

This research is based on data culled from self-reported individual answers collected by the General Social Survey (GSS) regarding individualsÂ’ socioeconomic beliefs. The GSS conducts basic scientific research on the structure and development of American society using a standard set of behavioral and attitudinal questions, many of which have remained unchanged since 1972.

The researchers focus on the 18-to-25 age group who came of age in a recession. This age focus is based on social psychologists' findings that these are among the most impressionable years, during which time one's beliefs and values about how society and the economy work are formed. Guiliano and Spilimbergo match each generation's responses to yearly economic events, nationally and regionally, and refine them to include other economic factors such as volatility, booms, and regional GDP growth. The GSS data also contain background information on each individual, including religion, family income, parentsÂ’ education, and location when the individual was 16, which the authors incorporate into their analysis of the respondents' answers in the survey.

-- Frank Byrt

The Digest is not copyrighted and may be reproduced freely with appropriate attribution of source.
 
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