The Matching Multiplier and the Amplification of Recessions
AbstractThis 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 workers' 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.
CitationPatterson, Christina. 2023. "The Matching Multiplier and the Amplification of Recessions." American Economic Review, 113 (4): 982-1012. DOI: 10.1257/aer.20210254
- E21 Macroeconomics: Consumption; Saving; Wealth
- E23 Macroeconomics: Production
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles