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
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North American Industry Classification System,
Longitudinal Employer Household Dynamics,
PSID,
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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