The Washington PostDemocracy Dies in Darkness

Incomes actually went up after Hurricane Katrina. But economists don’t know why.

Surprising new research shows that people living in New Orleans were financially better off after Katrina.

In the aftermath of a natural disaster, homes and office complexes can be rebuilt. But can the lives of the survivors be pieced together as easily?

Kind of, yeah.

At least, financially speaking.

That’s the finding in a surprising new working paper by economists Tatyana Deryugina, Laura Kawano, and Steve Levitt, who studied people who lived through Hurricane Katrina.

The paper is unusual in that it analyzes individual tax returns, which provide a rich portrait of people’s economic well-being. Tax return data is tightly guarded to protect privacy, and that’s one reason why this kind of research into the effects of natural disasters has rarely been done in the past. (Kawano, who works at the Treasury Department, was the only one allowed to touch the raw data, Deryugina said.)

The economists looked at people who lived in New Orleans in 2004, the year before Katrina hit, and compared them to similar people living in similar cities. It’s important that they didn’t just make a before-and-after comparison, because the recession hit just a couple of years after Katrina (math was involved). To separate out the effects of Katrina from the effects of economic forces felt nationwide, they needed a control group.

After tightening up the statistics, the economists hit on a mystery. Not only were the storm’s effects transient, but people who had lived through Katrina seemed to end up in better financial shape.

Just three years after the storm, Katrina survivors were earning the same as people in the control group. By 2010, they were earning about $3,000 more annually on average, or about 8 percent of the median income in New Orleans.

(Survivors also were more likely to get married after the hurricane, but no more likely to get divorced, which is another puzzle without a clear explanation.)

Here’s how to read these charts, which plot the difference between New Orleans residents and the control group. The economists pulled tax filings from 1999 to 2010. From 1999 to 2005, New Orleans residents were no different from people in the control group. The difference is zero; the line is flat. After Katrina, the New Orleans residents saw unemployment rates spike and wages fall. But only for a year or two, and afterward, they were doing better than the control group on these measures.

The results are perhaps even more surprising, considering that the Federal Emergency Management Agency became a grim punchline after Katrina. There was poor preparation for the storm, and mismanagement before and after, which probably worsened the suffering.

Other, longer-term efforts seem to have been more helpful. Congress extended unemployment benefits to people affected by the storm, and allowed them to withdraw some money from their retirement accounts without penalty. The researchers saw in the data that people were taking advantage of these programs.

But what about all the missed work, all of the stagnant skills? What about the destroyed homes, the lost wealth and the emotional trauma? Somehow, these impediments did not translate into long-term misfortune for the Katrina survivors.

The economists pondered for a while about how this could possibly be. One theory they discuss is that the storm taught grit. Maybe the survivors became more motivated.

Another theory they consider is that the storm forced some people to move where they could earn higher wages. It’s expensive to relocate for new jobs (and few Americans do it these days). If people were stuck in low-paying positions, Katrina might have been the jolt they needed to move away and find better work.

There isn’t any evidence, though, that the people who left New Orleans were any better off. In fact, the authors report that most of the wage gains were experienced by people who returned to the city.

It’s more complicated than that, of course. The people who returned probably lived in one of the neighborhoods that had less flood damage — one of the richer neighborhoods. The people who moved away probably lived in one of the poorer neighborhoods that the storm destroyed. In New Orleans, storms hit poor places harder, and this confounds the analysis.

Then there is the theory that all of it is a mirage. Deryugina is partial to this explanation. (Disclosure: Deryugina was a teaching assistant for a class I took in college.) She notes that housing prices in New Orleans went up after Katrina (in part because so many homes were destroyed during the storm, shrinking the supply). This is one indication that the cost of living in New Orleans increased after Katrina. It’s possible that subsequently, people got paid more in response to the higher cost of living — meaning that in real terms they were not any better off than before.

Because these results come from tax returns, only the financial costs of the storm were measured. “Of course, we can’t observe happiness in the data,” Deryugina says. Other studies have recorded the increased rates of mental trauma and disability among Katrina survivors. Many suffer from PTSD.

Yet, despite these injuries, Katrina survivors seem to be doing pretty well, pocketbook-wise. And the reasons are still a mystery.