Income Composition and Employment Multipliers: Evidence From Paper Mill Closures

ABSTRACT Paper mill closures eliminate a major buyer in timber markets and a large source of income for rural economies. To understand how these demand shocks travel, we decompose the employment multiplier of a mid‐sized U.S. paper mill closure (a $180 million output reduction) into supply chain and household consumption channels. Applying structural path analysis to a national Social Accounting Matrix of 936 industries, 798 occupations, and household accounts spanning 16 demographic groups and three income types, we find that the closure eliminates 2370 jobs. Induced effects from reduced household consumption account for 48% of these losses, exceeding the 30% attributed to indirect supply chain linkages; with government transfers held exogenous, this share is an upper bound. The larger induced component reflects the expenditure composition recorded in the household accounts: wage‐receiving households direct 74.6% of income to goods and services, whereas capital‐receiving households allocate only 9.3% to non‐housing consumption. Because capital losses concentrate among adults aged 65 and older, their reduced spending generates limited downstream job losses, whereas male workers aged 35–64 receive 35.9% of wage income losses, which travel more widely through consumption. State‐level job multipliers from separate regional models with an aggregate household treatment range from 1.29 to 7.54, reflecting how much household spending each state retains. The composition of income losses, not only their aggregate size, shapes how severely demand shocks spread in commodity‐dependent economies.