Abstract
This study employs monthly survey data and information obtained from media content analyses to investigate the potential link between (negativity in) economic news coverage and the pessimism in German unemployment expectations. For the period from 2001 to 2009, time-series estimates do not indicate a link in the short-run, but the cumulative effects of repeated media coverage affect long-run attitudes. A single negative report has a long-term effect similar to that of a positive one, but the quantitative dominance of negative over positive news causes an asymmetric reaction in unemployment expectations, which promotes pessimism.
Introduction
Unemployment expectations may have considerable negative effects on aggregate consumption and wage growth (Blanchflower, 1991 and Carroll and Dunn, 1997), because consumers and employees restrain themselves when they are uncertain or pessimistic about the future. Previous research indicates that people usually expect substantially higher unemployment rates than the rates that actually appear in the future (Dickerson and Green, 2012, Dua and Smyth, 1993 and Tortorice, 2012).
Why are people so pessimistic about future unemployment? The impact of information transmitted by news media on unemployment expectations has been studied by some authors (Carroll, 2003, Curtin, 2003, Hagen, 2005 and Mutz, 1992), though without considering the possible link between pessimism and the news media. Using survey data and information obtained from media content analyses, this study addresses this research gap by examining the role of two categories of coverage in German news media: reports on the development of unemployment and coverage of the general economic situation. During the period from 2001 to 2009, it is possible to distinguish immediate agenda-setting effects from the long-run consequences of repeated news coverage.
News media are an obvious candidate cause of biased unemployment expectations, because reporting on the economy tends to be disproportionately negative (Hagen, 2005 and Kepplinger, 2000). Prior research suggests that news media distort economic expectations or perceptions in general; for example, Brettschneider (2003) finds that negativism in television news coverage is associated with pessimistic perceptions of the general economic situation, and Soroka (2006) shows that public responses to negative economic information are greater than to positive news. Dräger (2011) uncovers asymmetry in regard to inflation perceptions, and Hollanders and Vliegenthart (2011) find interrelations among the real economy, consumer confidence, and negative news.
In addition to addressing and important research gap, this article contributes to research on the media effects of economic news coverage in two ways. First, this study applies the asymmetric error correction approach proposed by Shin, Yu, and Greenwood-Nimmo (2011) to evaluate the cumulative influence of repeated media coverage, because its long-run effects might not be detected by usual time-series methods. Second, simple empirical tests are constructed to test for different forms of asymmetry in media effects. In particular, the distinction between per-unit and quantity-related asymmetry allows for a more detailed evaluation of the influence of (biased) news coverage.
The next section provides a brief discussion of the theoretical background for this study, followed by a description of the data. After explaining the econometric strategy and presenting the estimation results, this article concludes with a discussion of the implications.
