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Substance Use and Recessions: Insights from Economic Analyses of
Alcohol and Drug Use
Rosalie Liccardo Pacula, Ph.D.Co-Director RAND Drug Policy Research Center
Senior Economist, RAND
Drug Policy Research Center
October 2011Drug Policy Research Center2
Recent global recession and financial crisis decimated national budgets
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100
10
20
30
40
50
60
70
80
90
100
World
Advanced
Emerging
Source: IMF
Gross public debt as % of GDP
Economy:
October 2011Drug Policy Research Center3
Vulnerable populations affected by reduced services
• Elderly• Poor• Youth• People suffering from chronic physical and mental
health conditions– Addiction is *finally* understood as a chronic
disease amongst the scientific and medical communities
– Making inroads with policy makers
October 2011Drug Policy Research Center4
What We Know about Economic Recessions and Substance Use
• Most people familiar with the psychological mechanisms on behavior
– Recession Stress more use– Recession Risk taking more dangerous use
• Also people are aware of budget cuts impacting prevention and treatment
• So, general belief is that use of alcohol and illicit drugs as well as addiction rise during economic downturns
• But, economics literature shows heavy alcohol use falls during recessions and only light use rises.
October 2011Drug Policy Research Center5
The Global Recession: Not Your Typical Business-Cycle Fluctuation
• Wealth, not just disposable income, dropped dramatically at the beginning of the recession and continues to be affected
– Housing bubble experienced in several key consuming countries
– Drop in value of investments traded in financial markets through mortgage-backed securities
October 2011Drug Policy Research Center6
Global Recession Was Deeperfor Advanced Economies
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
-4
-2
0
2
4
6
8
10World
Advanced
Emerging
Source: IMF
% change in real GDP Economy:
October 2011Drug Policy Research Center7
Unemployment in Advanced Economies Increased After Global Recession
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
-4
-2
0
2
4
6
8
10
-6
-4
-2
0
2
4
6
% unemployed
% change in GDP
Source: IMF
% change in real GDP % unemployed
October 2011Drug Policy Research Center8
Outline
• Economic mechanisms that may affect alcohol and drug use and addiction
• Effects of business-cycle fluctuations on alcohol use
• Effects of business-cycle fluctuations on illicit-drug use
• Policy implications
October 2011Drug Policy Research Center9
Outline
• Economic mechanisms that may affect alcohol and drug use and addiction
• Effects of business-cycle fluctuations on alcohol use
• Effects of business-cycle fluctuations on illicit-drug use
• Policy implications
October 2011Drug Policy Research Center10
Two important economic driversimpacted by business cycle fluctuations
• Disposable Income• Relative Prices
October 2011Drug Policy Research Center11
How Recessions May Decrease Consumption of Alcohol and Illicit Drugs
Economic recession
Lower personal disposable income
Lower consumption of all goods, including alcohol
and illicit goods
October 2011Drug Policy Research Center12
How Recessions May Decrease Consumption of Alcohol and Illicit Drugs
Economic recession
Lower personal disposable income
Lower consumption of all goods, including alcohol
and illicit goods
“Income Effect”
October 2011Drug Policy Research Center13
How Recession May Decrease Consumption of Alcohol and Illicit Drugs
Economic recession
Lower personal disposable income
Lower consumption of all goods, including alcohol
and illicit goods
Change in relative prices
October 2011Drug Policy Research Center14
How Recession May Decrease Consumption of Alcohol and Illicit Drugs
Economic recession
Lower personal disposable income
Lower consumption of all goods, including alcohol
and illicit goods
Change in relative prices
1. Price of leisure time
2. Monetary price of drug A
October 2011Drug Policy Research Center15
What Has Research Shown on Price of Alcohol and Drugs in Recession?
• In recessionary times, price of alcohol is flat or increases
– No evidence manufacturers lower prices during recessions
– Governments may increase “sin” taxes, which may get passed through to alcohol prices
• Price of illicit drugs theoretically could fall– There is no empirical evidence supporting a
drop in illicit drug prices associated with recent global recession
October 2011Drug Policy Research Center16
UK Cocaine Price Has Been Steady Recently While Price for Crack Rose Sharply in 2009
2004 2005 2006 2007 2008 20090
10
20
30
40
50
60
70 Cocaine Crack£ per gram
Source: Independent Drug Monitoring Unit
October 2011Drug Policy Research Center17
UK Cannabis Prices HaveIncreased for Some Varieties
Black Soap-Bar Skunk Imported Bush0
20
40
60
80
100
120
140
160 2005 2006 2007 2008 2009£ per gram
Source: Independent Drug Monitoring Unit
October 2011Drug Policy Research Center18
How Recession May Decrease Consumption of Alcohol and Illicit Drugs
Economic recession
Lower personal disposable income
Lower consumption of all goods, including alcohol
and illicit goods
Change in relative prices
Lower price of leisure might increase or
decrease consumption
October 2011Drug Policy Research Center19
Outline
• Economic mechanisms that may affect alcohol and drug use and addiction
• Effects of business-cycle fluctuations on alcohol use
• Effects of business-cycle fluctuations on illicit-drug use
• Policy implications
October 2011Drug Policy Research Center20
Relationship Between Economic Conditions and Alcohol Use Is Nuanced
• Initial research found U.S. states with higher rates of unemployment had lower rates of total alcohol consumption and alcohol-related deaths
• Subsequent research found difference between “heavy” and “light” drinking during recessions
– Heavy drinking behavior is pro-cyclical, decreasing during recessions
– Some evidence light drinking may be countercyclical
• When modeled carefully, same results have been found for Europe (Gerdtham & Ruhm, 2006)
October 2011Drug Policy Research Center21
U.S. Trends in Employment, Smoking, and Obesity Have Similar Cyclical Patterns
Source: Ruhm, 2005
October 2011Drug Policy Research Center22
Outline
• Economic mechanisms that may affect alcohol and drug use and addiction
• Effects of business-cycle fluctuations on alcohol use
• Effects of business-cycle fluctuations on illicit-drug use
• Policy implications
October 2011Drug Policy Research Center23
Unemployment Boosts Cannabis andOther Drug Use Among U.S. Youths
Estimated effects of unemployment rate on youth drug use
Coefficient estimate for persons age
15 to 19 20 to 24
Used cannabis in past year 0.067* 0.080***
Used cannabis in past month 0.059 0.131***
Heavy use of cannabis in past month 0.116*** 0.209***
Times used cannabis in past month 0.096** 0.174***
Used other drugs in past year 0.165*** 0.015
Heavy use of other drugs in past year 0.129* 0.017
Times used other drugs in past month 0.211* 0.218
Source: Arkes, 2011* indicates statistical significance at the 10% level** indicates statistical significance at the 5% level*** indicates statistical significance at the 1% level
October 2011Drug Policy Research Center24
Unemployment Boosts Cannabis andOther Drug Use Among U.S. Youths
Estimated effects of unemployment rate on youth drug use
Coefficient estimate for persons age
15 to 19 20 to 24
Used cannabis in past year 0.067* 0.080***
Used cannabis in past month 0.059 0.131***
Heavy use of cannabis in past month 0.116*** 0.209***
Times used cannabis in past month 0.096** 0.174***
Used other drugs in past year 0.165*** 0.015
Heavy use of other drugs in past year 0.129* 0.017
Times used other drugs in past month 0.211* 0.218
Source: Arkes, 2011* indicates statistical significance at the 10% level** indicates statistical significance at the 5% level*** indicates statistical significance at the 1% level
October 2011Drug Policy Research Center25
Unemployment Boosts Cannabis andOther Drug Use Among U.S. Youths
Estimated effects of unemployment rate on youth drug use
Coefficient estimate for persons age
15 to 19 20 to 24
Used cannabis in past year 0.067* 0.080***
Used cannabis in past month 0.059 0.131***
Heavy use of cannabis in past month 0.116*** 0.209***
Times used cannabis in past month 0.096** 0.174***
Used other drugs in past year 0.165*** 0.015
Heavy use of other drugs in past year 0.129* 0.017
Times used other drugs in past month 0.211* 0.218
Source: Arkes, 2011* indicates statistical significance at the 10% level** indicates statistical significance at the 5% level*** indicates statistical significance at the 1% level
October 2011Drug Policy Research Center26
Youths Who Use Illicit Drugs Are More Likely to Sell Them in Economic Recession
• Teenagers face higher risk of unemployment when economy contracts
October 2011Drug Policy Research Center27
Youth Unemployment in the UK Is Greaterthan Total Unemployment
2008-III 2008-IV 2009-I 2009-II 2009-III 2009-IV 2010-I 2010-II 2010-III 2010-IV 2011-I 2011-II 2011-III*
0
5
10
15
20
25 UK total UK 18-24
Year and quarter
% unemployed
Sources: UK Office for National Statistics, US Bureau of Labor Statistics.2011-III data fur UK for June-August 2011.
October 2011Drug Policy Research Center28
Youth Unemployment in the United States Is Also Far Greater than Total Unemployment
2008-III 2008-IV 2009-I 2009-II 2009-III 2009-IV 2010-I 2010-II 2010-III 2010-IV 2011-I 2011-II 2011-III*
0
5
10
15
20
25
30 US total US 16-19
Year and quarter
% unemployed
Sources: UK Office for National Statistics, US Bureau of Labor Statistics.2011-III data fur UK for June-August 2011.
October 2011Drug Policy Research Center29
Youths Who Use Illicit Drugs Are More Likely to Sell Them in Economic Recession
• Teenagers face higher risk of unemployment when economy contracts
• Hypotheses for why they seek/obtain jobs in black market:
– Social networks facilitate it– Youth have lower rates of risk-aversion– Black market actively recruits youth sellers– Enforcement reduced
• Implications:– Teens able to partially or fully offset income lost
from legitimate market employment– Teens learn where to buy drugs at lower prices
October 2011Drug Policy Research Center30
Similar Age Differences Observed in Australian Household Survey Data
Predicted Effect of
1-percent increase in unemployment
$1,000 increase in per capita income
On cannabis use by
Total population -1.9 % decrease -0.8% decrease
14-24 year-olds 2.4% increase 0.2% increase
25-34 year-olds 1.4% increase 0.2% increase
Source: Chalmers and Ritter, 2011
October 2011Drug Policy Research Center31
Why Does Relationship Between Economy and Illicit Drugs Use Differ by Age?
• Youth may be more willing than adults to engage in black-market alternatives during economic slowdowns
– Participating in black markets can result in no real loss in general income
– Clear evidence supporting this interpretation in the United States, but additional research needed on other developed countries
• Psychological mechanisms associated with recessions may dominate economic mechanisms for this segment of the population
October 2011Drug Policy Research Center32
Outline
• Economic mechanisms that may affect alcohol and drug use and addiction
• Effects of business-cycle fluctuations on alcohol use
• Effects of business-cycle fluctuations on illicit-drug use
• Policy implications
October 2011Drug Policy Research Center33
Research Offers Several Insights for Policy• Evidence pointing to decrease in heavy use of
alcohol and illicit drugs among older adults may mean short-term cuts in treatment budgets not as important as cuts in prevention right now
• Rise in illicit drug use among youth & young adults means need for future treatment will rise, however
– Budget cuts for treatment must only be temporary
• Youths are particularly vulnerable in recessions– Vulnerable to initiating drug use– Vulnerable to engaging in black market
activities
October 2011Drug Policy Research Center34
Main Conclusion• Both psychological and economic factors influence
consumption during economic downturns• There is heterogeneity in which factor dominates a
given population’s behavior• For the population on average, income effects seem
to dominate psychological factors for heavy drinking
• Several social factors might change the relative importance of income effects:
– System of social insurance in a country– Intensity and duration of recession– Ability of a country to borrow during recessions
to maintain enforcement & programs
October 2011Drug Policy Research Center35
Thank you!!