Does a Strengthened Economy Weaken Your Health? Evidence from Australian Microdata

Abstract: A number of recent studies using aggregate data have found a counter- cyclical relationship between business cycles and health; using mortality rates as health measure and where the unemployment rate typically is chosen as the business cycle proxy. This thesis adds to this literature in several respects. Firstly, by conducting the analysis on Australian microdata over the 2001-2011 period I test whether the counter-cyclical variation in health is visible using a more fined-tuned health measure; the SF-6D health state classification system. Secondly, several regional level business cycle proxies are applied in addition to the use of unemployment rates. Thirdly, I test whether the business cycle effects differ across different population subgroups, principally based on socioeconomic affiliation. Lastly, I investigate whether the effect of the business cycle on health goes through the channel of changes in lifestyle decisions affected by the business cycle. The main result of this study suggests indeed that health declines as the economy strengthens. Notably, the analysis on population subgroups suggests that it is only the health of low-income and low-educated groups that is affected by the business cycle. No evidence is found suggesting that the counter-cyclical variation in health is driven by cyclically varying lifestyle decisions.