Long-term impact of recessions on individuals

In December 2007, a financial crisis broke out and rapidly spread over the whole world, resulting in a global recession that is long lasting and causes great economic downturn. Although the real origin of the crisis is still in debate, there is no doubt to state that the consequences of recession in a variety of aspects are devastating.

What precisely is the impact of recessions on individuals? Do they become more cautious because of the experience of recessions? Are people more likely to start their own business with a memory of recession? Or do they choose to go back to school? This brings about the core research question of the paper. In this paper, the analysis is intended to investigate the long lasting effect of recessions to individuals’ traits in decision making. Three aspects are assessed, namely intention of entrepreneurship, decision on continuing higher education and degree of risk aversion.

In the analysis, unique methodology is adopted which distinguishes itself from other relevant studies. Most research, such as paper by Koellinger and Thurik (2011), investigates the impact of recession in the macroeconomic level which employs macroeconomics data such as unemployment rate, GDP per capita and entrepreneurship rate. Moreover, the indicating relationship is also usually an indication of immediate effect. In this paper, the analysis is conducted in a microeconomic level applying household data through self-reported questionnaires, complemented by knowledge of macroeconomic conditions. Owing to its specific design, the paper is able to examine long term effect of recessions on individuals in three different aspects.