The Matching Multiplier and the Amplification of Recessions
June 2022
Working Paper Number:
CES-22-20
Abstract
This paper shows that the unequal incidence of recessions in the labor market amplifies aggregate shocks. Using administrative data from the United States, I document a positive covariance between worker marginal propensities to consume (MPCs) and their elasticities of earnings to GDP, which is a key moment for a new class of heterogeneous-agent models. I define the Matching Multiplier as the increase in the multiplier stemming from this matching of high MPC workers to more cyclical jobs. I show that this covariance is large enough to increase the aggregate MPC by 20 percent over an equal exposure benchmark.
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econometrically,
macroeconomic,
aggregate,
employ,
employed,
labor,
recession,
heterogeneity,
spillover,
workforce,
gdp,
saving,
earner,
unemployed,
recession exposure,
propensity
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Longitudinal Employer Household Dynamics,
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NBER Summer Institute,
Census Bureau Disclosure Review Board,
Minnesota Population Center,
Disclosure Review Board,
Federal Statistical Research Data Center,
Consumer Expenditure Survey
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