Economic conditions at the time of birth and cognitive abilities late in life: Evidence from eleven European countries

With ageing populations and a stronger reliance on individual financial decision-making concerning asset portfolios, retirement schemes, pensions and insurances, it becomes increasingly important to understand the determinants of cognitive ability among the elderly. To study effects of the early-life economic environment, macro-economic fluctuations may be used. In European countries, about three to four economic recession and boom periods occurred between 1900 and 1945. The timing of these periods differs across countries. We apply data from the Survey of Health, Aging and Retirement in Europe (SHARE) among elderly individuals. This survey is homogeneous across countries. We use almost 20,000 respondents from 11 countries. We examine several domains of cognitive functioning at ages 60+ and link them to the macro-economic deviations in the year of birth, controlling for demographic, socioeconomic and health status. We find that economic conditions at birth significantly influence cognitive functioning late in life in various domains. The effects are particularly pronounced among the less educated. Recessions negatively influence numeracy and verbal fluency as well as the score on the omnibus cognitive indicator. The results are robust; controlling for current characteristics does not change effect sizes and significance. We discuss possible causal pathways.