American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Stock Market Wealth and the Real Economy: A Local Labor Market Approach
American Economic Review
vol. 111,
no. 5, May 2021
(pp. 1613–57)
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.Citation
Chodorow-Reich, Gabriel, Plamen T. Nenov, and Alp Simsek. 2021. "Stock Market Wealth and the Real Economy: A Local Labor Market Approach." American Economic Review 111 (5): 1613–57. DOI: 10.1257/aer.20200208Additional Materials
JEL Classification
- E21 Macroeconomics: Consumption; Saving; Wealth
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E52 Monetary Policy
- G12 Equities; Fixed Income Securities
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- R22 Urban, Rural, Regional, Real Estate, and Transportation Economics: Other Demand
- R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics