American Economic Review Vol. 111 No. 5 2021

Stock Market Wealth and the Real Economy: A Local Labor Market Approach

Gabriel Chodorow-Reich¹; Plamen T. Nenov²; Alp Simsek³

¹ Department of Economics, Harvard University, and NBER (email: ) · ² Norwegian Business School (BI) (email: ) · ³ Department of Economics, MIT, NBER, and CEPR (email: )

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.

DOI

10.1257/aer.20200208

Volume

111

Issue

5

Pages

1613-1657

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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