Matthew Notowidigdo

Associate Professor of Economics | IPR Fellow (on leave, 2018–19)


Biography

An applied microeconomist, Matthew Notowidigdo studies a broad set of topics in labor and health economics using a variety of empirical approaches. In labor economics, his research has focused on understanding the causes and consequences of unemployment duration dependence (state dependence in unemployment), the incidence of local labor demand shocks, and the economic effects of unemployment insurance over the business cycle. One theme across all of these topics is using variation in local labor market conditions to inform economic theories and learn new facts about the labor market. Notowidigdo’s research in health economics focuses on the effects of public health insurance on labor supply, the effects of health on the marginal utility of consumption, and the effects of income on health spending. An important motivation for this line of research is to inform the design of public health insurance programs.

Notowidigdo is a co-editor at the American Economic Journal: Economic Policy, an associate editor at the Quarterly Journal of Economics, and a faculty research fellow at the National Bureau of Economics Research (NBER). His co-authored paper that was published in the Journal of the European Economic Association, “What Good is Wealth without Health? The Effect of Health on the Marginal Utility of Consumption," won the association's 2014 Hicks-Tinbergen Medal, awarded to the most outstanding article published in the last two years. Before coming to Northwestern, Notowidigdo was the Neubauer Family Assistant Professor of Economics at the University of Chicago Booth School of Business.

Current Research

Take-up and Targeting: Experimental Evidence from SNAP. Notowidigdo and Amy Finkelstein of MIT develop a framework for evaluating the welfare impact of various interventions designed to increase take-up of social safety net programs in the presence of potential behavioral biases. They calibrate the key parameters using a randomized field experiment in which 30,000 elderly individuals not enrolled in—but likely eligible for—the Supplemental Nutrition Assistance Program (SNAP) are either provided with information that they are likely eligible, provided with this information and also offered assistance in applying, or are in a “status quo” control group. Only 6 percent of the control group enrolls in SNAP over the next 9 months, compared to 11 percent of the Information Only group and 18 percent of the Information Plus Assistance group. The individuals who apply or enroll in response to either intervention receive lower benefits and are less sick than the average enrollee in the control group. The results are consistent with the existence of optimization frictions that are greater for needier individuals, suggesting that the poor targeting properties of the interventions reduce their welfare gains.

The Marginal Propensity to Consume Over the Business Cycle. Notowidigdo, Tal Gross of Boston University, and Jialan Wang of the University of Illinois at Urbana-Champaign estimate how the marginal propensity to consume out of liquidity (MPC) varies over the business cycle. Ten years after an individual declares Chapter 7 bankruptcy, the record of the bankruptcy is removed from her credit report, generating an immediate and persistent increase in credit score. The researchers study the effects of “bankruptcy flag” removal using a sample of over 160,000 bankruptcy filers whose flags were removed between 2004 and 2011. They document that in the year following flag removal, credit card limits increase by $780 and credit card balances increase by roughly $290, implying an MPC of 0.37. Using cohorts of flag removals over the last business cycle, they find that the MPC is 20 to 30 percent higher during the Great Recession compared to surrounding years. The MPC also increased during the 2001 recession, and is positively correlated with the local unemployment rate. The researchers find no evidence that this counter-cyclical variation in the MPC is accounted for by changes in prices, the composition of borrowers, or credit supply over the business cycle. Taken together, these results are consistent with models where liquidity constraints bind more frequently when macro-economic conditions are poor.

Selected Publications

Dobkin, C., A. Finkelstein, R. Kluender, and M. Notowidigdo. 2018. The economic consequences of hospital admissionsAmerican Economic Review 108(2): 308–52. 

Garthwaite, C., T. Gross, and M. Notowidigdo. 2018. Hospitals as insurers of last resortAmerican Economic Journal: Applied Economics 10(1): 1–39.

Cesarini, D., E. Lindqvist, M. Notowidigdo, and R. Östling. 2017. The effect of wealth on individual and household labor supply: Evidence from Swedish lotteriesAmerican Economic Review 107(12): 3917–46.

Garthwaite, C., T. Gross, and M. Notowidigdo. 2014. Public health insurance, labor supply, and employment lockQuarterly Journal of Economics 129(2): 653–96.

Kroft, K., F. Lange, and M. Notowidigdo. 2013. Duration dependence and labor market conditions: Evidence from a field experimentQuarterly Journal of Economics 128(3): 1123–67.

Finkelstein, A., E. Luttmer, and M. Notowidigdo. 2013. What good is wealth without health? The effect of health on the marginal utility of consumptionJournal of the European Economic Association 11:221–58.