Working Paper: NBER ID: w24011
Authors: Shai Bernstein; Timothy McQuade; Richard R. Townsend
Abstract: 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 different declines in housing wealth, but who were employed at the same firm and lived in the same area at the onset of the 2008 crisis. We find that, following a negative wealth shock, innovative workers become less productive, and generate lower economic value for their firms. Consistent with a debt-related channel, the effects are more pronounced among those with little home equity before the crisis and those with fewer outside labor market opportunities.
Keywords: household wealth shocks; worker productivity; economic downturns; innovative output
JEL Codes: G01; O3; O31; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reduced productivity (O49) | Fewer patents (O34) |
| Reduced productivity (O49) | Patents of lower quality (L15) |
| Negative wealth shocks (E21) | Less exploratory innovative projects (O36) |
| Negative wealth shocks (E21) | Narrower scope of innovations (O36) |
| Negative wealth shocks (E21) | Less likely to patent in new technologies (O39) |
| Negative wealth shocks (E21) | Reduced productivity among workers with low home equity and fewer job opportunities (J69) |
| Negative wealth shocks (E21) | Reduced productivity (O49) |