The Role of Economic Shocks on Health : Evidence from German Reunification

Sudden economic shocks impact the everyday lives of people from one day to the next. A number of studies have examined the association between economic fluctuations and health, however, no consensus on the nature of this relationship has been established. By exploiting the dramatic economic fluctuations following the German Reunification of 1990, which included a sudden change from a socialist to a capitalist system in East Germany, this study examines the association between broad negative economic shocks and health. The paper finds that increases in state unemployment rates are associated with large and statistically significant declines in health outcomes. Estimates are stronger for people who became unemployed shortly after reunification, for low-income individuals, and for East Germans, a group confronted with larger economic fluctuations. When examining potential mechanisms that could explain the observed health deteriorations, the study finds significant reductions in exercise frequency, increases in economic uncertainty and overall stress