The Health Channel of Business Cycles

Thorsten Drautzburg, Grey Gordon, Pablo Guerron and Alexey Khazanov
Additional contact information
Grey Gordon: https://www.richmondfed.org/research/people/gordon

No 26-32, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We document that economic contractions causally worsen health among working-age adults and that poor health predicts negative labor market outcomes. These findings reveal a health channel of business cycles. To quantify its magnitude, we build a dynamic general equilibrium model with incomplete markets where agents differ in their health, labor productivity, and wealth. The health channel captures the two-way feedback between pure health shocks — which raise the risk of downward health transitions — and other aggregate shocks, namely, demand and productivity. Our novel estimation strategy identifies the shock correlations, pinning down the health channel. We find the health channel accounts for 14 percent of employment variance over the cycle and 11 percent of the employment decline in the Global Financial Crisis.

Keywords: business cycles; computational methods; health; heterogeneity; labor supply; general equilibrium (search for similar items in EconPapers)
JEL-codes: C62 D91 E24 E32 I15 (search for similar items in EconPapers)
Pages: 71
Date: 2026-07-02
New Economics Papers: this item is included in nep-dge
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.philadelphiafed.org/-/media/frbp/asset ... ers/2026/wp26-32.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:103482

Ordering information: This working paper can be ordered from

DOI: 10.21799/frbp.wp.2026.32

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Philadelphia Contact information at EDIRC.
Bibliographic data for series maintained by Beth Paul ().