Do Household Wealth Shocks Affect Productivity: Evidence from Innovative Workers During the Great Recession
SHAI BERNSTEIN, TIMOTHY MCQUADE, and RICHARD R. TOWNSEND
Journal of Finance
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We investigate how the deterioration of household balance sheets affects worker productivity, and whether such effects mitigate or amplify economic downturns. To do so, we compare the output of innovative workers who experienced differential declines in housing wealth during the financial crisis, but who 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. Finally, the effects are more pronounced among those at greater risk of financial distress.