Recessions, Unemployment and the Brain: Do Individual and Aggregate Economic Shocks Prior to Retirement Leave a Cognitive "Scar"?

Philipp Hessel, Harvard University
Anja K. Leist, University of Luxembourg
Carlos J. Riumallo-Herl, Harvard University
Mauricio Avendano, London School of Economics and Political Science (LSE)

Based on a linkage of state unemployment rates and individual-level data from the Health and Retirement Study (HRS), we assess whether exposure to unfavorable macroeconomic conditions in the years leading up to retirement affect both levels as well as changes in cognitive functioning after retirement. Our results suggest that recessions experienced in the years prior to retirement can have substantial negative effects on cognitive function at age 65 and beyond. Our results are robust to various specifications and suggest that these effects are particularly strong for older workers with unstable careers who are hit by a recession, while they are similar for individuals from different race or educational level.