How Does Macroeconomic Change Affect Social Identity (and Vice Versa?): Insights from the European Context

Economic strategies are largely driven by political and economic considerations. However, we contend that social psychological processes, particularly identity, play an important role and should also be a focus for policy strategies. We review evidence on how changes in the macroeconomy can impact social identities, and vice versa. Drawing on social psychological theories of identity and categorization, and using the current European context as a main example, we consider how large scale events (both positive and negative) affect the economy and how this articulates with people’s identities. The review considers how consumerism, consumption patterns, and consumer confidence relate to changes in identity. It also considers the consequences of macroeconomic change for social cohesion. We describe a novel model that sets out the likely opportunities and challenges for individuals, groups, and society, in the context of future macroeconomic scenarios: recession, stagnation, and growth. The review highlights the bidirectional nature of the relationship between the economy and social identity, and calls for policy makers to consider social psychological perspectives when developing economic strategies.