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Do Household Wealth Shocks Affect Productivity? Evidence from Innovative Workers During the Great Recession

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  • SHAI BERNSTEIN
  • TIMOTHY MCQUADE
  • RICHARD R. TOWNSEND

Abstract

We investigate how the deterioration of household balance sheets affects worker productivity, and in turn economic downturns. Specifically, we compare the output of innovative workers who experienced differential declines in housing wealth during the financial crisis but were employed at the same firm and lived in the same metropolitan area. We find that, following a negative wealth shock, innovative workers become less productive and generate lower economic value for their firms. The reduction in innovative output is not driven by workers switching to less innovative firms or positions. These effects are more pronounced among workers at greater risk of financial distress.

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  • Shai Bernstein & Timothy Mcquade & Richard R. Townsend, 2021. "Do Household Wealth Shocks Affect Productivity? Evidence from Innovative Workers During the Great Recession," Journal of Finance, American Finance Association, vol. 76(1), pages 57-111, February.
    • Handle: RePEc:bla:jfinan:v:76:y:2021:i:1:p:57-111
    DOI: 10.1111/jofi.12976
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