Working Paper: NBER ID: w15219
Abstract: We study the interactions between the stock market and the labor market. When aggregate risk premiums are time-varying, predictive variables for market excess returns should forecast long-horizon growth in the marginal benefit of hiring and thereby long-horizon aggregate employment growth. Consistent with this logic, we document that long-horizon payroll growth and change in unemployment rate are predictable with risk premium proxies. Lagged payroll growth and change in unemployment rate also forecast stock market excess returns.
Keywords: Stock Market; Aggregate Employment; Risk Premiums; Labor Market Dynamics
JEL Codes: G12; G17; J01; J23; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| risk premiums (G19) | short-term payroll growth (J39) |
| risk premiums (G19) | rising unemployment rates (J64) |
| risk premiums (G19) | long-term payroll growth (J39) |
| risk premiums (G19) | declining unemployment rates (J64) |
| lagged payroll growth (J39) | stock market excess returns (G12) |
| changes in unemployment rates (J64) | stock market excess returns (G12) |