How the spending of the rich drives the income of the poor, and why this matters for the business cycle

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During recessions, spending on non-essentials contracts significantly more than spending on essentials, driven by affluent households. This has a particularly large effect on low-income/hand-to-mouth workers, who are more likely to be employed in non-essential industries and therefore see their labour demand contract more. This column develops a model which shows that the interaction between cyclical spending composition and heterogeneous sectoral labour composition amplifies the effects of