The Causes of Poverty (67): Lack of Hope

Esther Duflo tells us about a program in West Bengal. People were given a “small productive asset” such as a farm animal for instance, and some money so as to prevent people from eating or selling the animal.

Well after the financial help and hand-holding had stopped, the families of those who had been randomly chosen for the … programme were eating 15% more, earning 20% more each month and skipping fewer meals than people in a comparison group. They were also saving a lot. The effects were so large and persistent that they could not be attributed to the direct effects of the grants: people could not have sold enough milk, eggs or meat to explain the income gains. Nor were they simply selling the assets (although some did). (source)

The most likely reason for this is hope. The handouts broke the cycle of pessimism and lack of hope. People were finally offered some mental space to think about something else than just mere survival. The tiny bit of security that came with a farm animal and a financial buffer opened up the possibility of planning, of looking into alternative livelihoods etc. For example, recipients worked 28% more hours, mostly on activities not directly related to the assets they were given. The rate of depression among participants also plummeted.

Some older and related posts:

More posts in this series are here.

Economic Human Rights (41): Unemployment, a Cost-Benefit Analysis

Unemployment is a violation of an individual’s right to work. It stunts her creativity and diminishes her wellbeing, in a material, moral and psychological sense, in many cases even pushing her into poverty, ill health and depression.

For a person with no pre-existing health conditions, losing one’s job increased the chances of reporting a new health problem by 83 percent. Overall, the newly unemployed had a 54 percent chance of reporting fair or poor health. (source, source)

Unemployment is also self-perpetuating because it makes it harder to find a new job – employers prefer candidates who already have a job. In addition, it depresses wage levels, even decades after the end of a spell of unemployment.

Needless to say, these costs don’t affect only the unemployed themselves. Their families and children also suffer:

We find that a parental job loss increases the probability of children’s grade retention by 0.8 percentage points, or around 15 percent. After conditioning on child fixed effects, there is no evidence of significantly increased grade retention prior to the job loss, suggesting a causal link between the parental employment shock and children’s academic difficulties. These effects are concentrated among children whose parents have a high school education or less. (source)

And the ripple effect of unemployment covers the whole of society. Unemployment has a social cost: above and beyond the fiscal pressure – unemployment benefits have to be paid, either through increased taxes or cuts in other public services – it deprives society of valuable input and human ingenuity.

Still, all these costs should not blind us to the real benefits that unemployment can bring. And I’m not talking about those few individuals who are “liberated” from their mind numbing jobs and take the chance offered by unemployment to start a successful business doing something they always wanted to do but never had the chance or guts to do. Neither am I referring to kidults reveling in “funemployment”, staying with their parents well into their twenties or beyond, and taking the opportunity to prolong their childhood. Those are not the majority of the unemployed.

However, some among the majority may also find a silver lining. Maybe unemployment makes them less materialistic and more financially prudent; maybe some of them will use their free time to volunteer and educate themselves; society may become humbler and gentler; maybe concerns for social justice become more prevalent since the unemployed, ex-unemployed and their friends and families have become more conscious of the role of luck in life’s outcomes, as compared to the limited role of desert. Some health indicators may improve:

Interestingly, though high-stress events such as foreclosures and unemployment may hurt the health of those directly impacted, there’s some evidence that recessions have a positive impact on a nation’s health overall. In 2000, Christopher Ruhm, an economist at the University of North Carolina at Greensboro, found that a 1 percent rise in a state’s unemployment rate led to a 0.6 percent decrease in total mortality, looking at mortality changes in the United States between 1972 and 1991. … economic downturns could improve health through “declines in smoking, excessive alcohol consumption and overeating during recessions as people look for ways to save money.” (source)

Of course, there’s no way these benefits cancel out all of the costs. Unemployment is a scourge and a human rights violation, and capitalism doesn’t do itself any favors by maintaining and temporarily inflating its “industrial reserve army“.

More on the human cost of unemployment is here and here.