Drug Policy Research Center
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
Recent global recession and financial crisis
decimated national budgets
Gross public debt as % of GDP
100
90
80
70
60
50
Economy:
40
World
30
Advanced
20
10
Emerging
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: IMF
Drug Policy Research Center
October 2011
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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
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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.
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October 2011
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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
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Global Recession Was Deeper
for Advanced Economies
10
% change in real GDP
Economy:
World
Advanced
8
Emerging
6
4
2
0
-2
-4
1980
1985
Drug Policy Research Center
1990
1995
2000
2005
2010
Source: IMF
October 2011
6
Unemployment in Advanced Economies
Increased After Global Recession
10
% change in real GDP
% unemployed
8
6
4
2
0
-2
-4
1980
% unemployed
% change in GDP
1985
Drug Policy Research Center
1990
1995
2000
2005
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
2010
Source: IMF
October 2011
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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
Drug Policy Research Center
October 2011
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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
Drug Policy Research Center
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Two important economic drivers
impacted by business cycle fluctuations
• Disposable Income
• Relative Prices
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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
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How Recessions May Decrease
Consumption of Alcohol and Illicit Drugs
Economic recession
Lower personal
disposable income
“Income Effect”
Lower consumption of all
goods, including alcohol
and illicit goods
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How Recession May Decrease Consumption of
Alcohol and Illicit Drugs
Economic recession
Lower personal
disposable income
Change in
relative prices
Lower consumption of all
goods, including alcohol
and illicit goods
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How Recession May Decrease Consumption of
Alcohol and Illicit Drugs
Economic recession
Lower personal
disposable income
Change in
relative prices
1. Price of leisure time
Lower consumption of all
goods, including alcohol
and illicit goods
Drug Policy Research Center
2. Monetary price of drug A
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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
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UK Cocaine Price Has Been Steady Recently
While Price for Crack Rose Sharply in 2009
£ per gram
70
Cocaine
Crack
60
50
40
30
20
10
0
2004
2005
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2006
2007
2008
2009
Source: Independent Drug Monitoring Unit
October 2011
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UK Cannabis Prices Have
Increased for Some Varieties
£ per gram
160
2005
2006
2007
2008
2009
140
120
100
80
60
40
20
0
Black
Drug Policy Research Center
Soap-Bar
Skunk
Imported Bush
Source: Independent Drug Monitoring Unit
October 2011
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How Recession May Decrease Consumption of
Alcohol and Illicit Drugs
Economic recession
Lower personal
disposable income
Change in
relative prices
Lower consumption of all
goods, including alcohol
and illicit goods
Lower price of leisure
might increase or
decrease consumption
Drug Policy Research Center
October 2011
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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
Drug Policy Research Center
October 2011
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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)
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October 2011
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U.S. Trends in Employment, Smoking, and
Obesity Have Similar Cyclical Patterns
Drug Policy Research Center
Source: Ruhm, 2005
October 2011
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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
Drug Policy Research Center
October 2011
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Unemployment Boosts Cannabis and
Other 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
* indicates statistical significance at the 10% level
** indicates statistical significance at the 5% level
*** indicates statistical significance at the 1% level
Source: Arkes, 2011
Drug Policy Research Center
October 2011
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Unemployment Boosts Cannabis and
Other 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
* indicates statistical significance at the 10% level
** indicates statistical significance at the 5% level
*** indicates statistical significance at the 1% level
Source: Arkes, 2011
Drug Policy Research Center
October 2011
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Unemployment Boosts Cannabis and
Other 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
* indicates statistical significance at the 10% level
** indicates statistical significance at the 5% level
*** indicates statistical significance at the 1% level
Source: Arkes, 2011
Drug Policy Research Center
October 2011
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Youths Who Use Illicit Drugs Are More Likely
to Sell Them in Economic Recession
• Teenagers face higher risk of unemployment when
economy contracts
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Youth Unemployment in the UK Is Greater
than Total Unemployment
25
% unemployed
UK total
UK 18-24
20
15
10
5
0
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*
Year and quarter
Sources: UK Office for National Statistics, US Bureau of Labor Statistics.
2011-III data fur UK for June-August 2011.
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Youth Unemployment in the United States Is
Also Far Greater than Total Unemployment
30
% unemployed
US total
US 16-19
25
20
15
10
5
0
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*
Year and quarter
Sources: UK Office for National Statistics, US Bureau of Labor Statistics.
2011-III data fur UK for June-August 2011.
Drug Policy Research Center
October 2011
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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
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October 2011
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Similar Age Differences Observed in Australian
Household Survey Data
Predicted Effect of
1-percent increase in
unemployment
$1,000 increase in per
capita income
-1.9 % decrease
-0.8% decrease
On cannabis use by
Total population
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
Drug Policy Research Center
October 2011
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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
Drug Policy Research Center
October 2011
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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
Drug Policy Research Center
October 2011
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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
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October 2011
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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
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Thank you!!
Drug Policy Research Center
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