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The Matching Multiplier and the Amplification of Recessions

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  • Christina Patterson

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.

Suggested Citation

  • Christina Patterson, 2022. "The Matching Multiplier and the Amplification of Recessions," Working Papers 22-20, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:22-20
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    File URL: https://www2.census.gov/ces/wp/2022/CES-WP-22-20.pdf
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    References listed on IDEAS

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    Cited by:

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    4. Martinez, Joseba & Philippon, Thomas & Sihvonen, Markus, 2022. "Does a currency union need a capital market union?," Journal of International Economics, Elsevier, vol. 139(C).
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    6. Marco Bellifemine & Adrien Couturier & Rustam Jamilov, 2022. "The Regional Keynesian Cross," Economics Series Working Papers 995, University of Oxford, Department of Economics.

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    More about this item

    Keywords

    Marginal Propensity to Consume; Amplification; Labor Market Inequality;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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