Patryk Babiarz

The impact of diminished housing wealth on health in the United States: Evidence from the Great Recession

The sharp decline in home values in many industrialized and developing countries was one of the most evident facets of the global economic recession of 2008. Using data from the Panel Study of Income Dynamics (PSID) for 2007-2011, this study examines how the decline in housing wealth affected the psychological and physical health and health-related behaviors of 4007 U.S. households who were homeowners in 2007. We focus on two mechanisms that could account for how the drop in housing wealth affects health: increase in stress and negative changes in health-related behaviors. Controlling for the changes in non-housing wealth and employment status during the recession, the decline in housing wealth is associated with a small but statistically significant increase in psychological distress. Psychological health deteriorates more as the housing wealth relative to total wealth decreases. Finally, homeowners who have difficulties with mortgage payments report substantial increases in psychological distress and have higher rates of depression. These findings, combined with limited evidence of the change in health-related behaviors, suggest that the increase in stress is the main cause of the adverse health outcomes.

The impact of adverse health events on consumption: Understanding the mediating effect of income transfers, wealth, and health insurance

Using data from the Panel Study of Income Dynamics for years 1999-2013, we investigate the impact of physical and mental illnesses on household consumption and financial status. In comparison to severe physical health problems, mental illnesses lead to larger decreases in labor income. Increases in public and private transfers following the onset of a mental illness do not completely offset the decline in labor income. Consequently, we find a significant decrease in consumption expenditures after the household head experiences a mental problem. On the other hand, public and private transfers and accumulated wealth offset the relatively smaller decline in labor income and enable households with severe physical problems to smooth their consumption. Health insurance helps to prevent larger drops in consumption after the onset of a mental health problem.