Stock Market Wealth and the Real Economy: A Local Labor Market Approach
Gabriel Chodorow-Reich, Plamen T. Nenov, Alp Simsek
American Economic Review · 2021 · Volume 111 · Issue 5
Abstract
We provide evidence of the stock market consumption wealth effect by using a local labor market analysis. An increase in local stock wealth driven by aggregate stock prices increases local employment and payroll in nontradable industries and in total, with no effect on employment in tradable industries. In a model of geographic heterogeneity in stock wealth, these responses imply an MPC of 3.2 cents per year and that a 20 percent increase in stock valuations, unless countered by monetary policy, increases the aggregate labor bill by at least 1.7 percent and aggregate hours by at least 0.7 percent two years after the shock.
Keywords
Macroeconomics: Consumption, Saving, Wealth, Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital, Aggregate Labor Productivity, Monetary Policy, Equities, Fixed Income Securities, Household Finance: Household Saving, Borrowing, Debt, and Wealth, Urban, Rural, Regional, Real Estate, and Transportation Economics: Other Demand, and Transportation Economics: Regional Migration, Regional Labor Markets, Population, Neighborhood Characteristics
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