Working Paper: NBER ID: w27646
Authors: Marco Di Maggio; Amir Kermani; Rodney Ramcharan; Vincent Yao; Edison Yu
Abstract: Using new employer-employee matched data, this paper investigates the impact of uncertainty, as measured by idiosyncratic stock market volatility, on individual outcomes. We find that firms provide at best partial insurance to their workers. An increase in firm-level uncertainty is associated with a decline in total compensation, especially in variable pay. In turn, individuals reduce their durable goods consumption in response to these uncertainty shocks. These shocks also lead to greater financial fragility among lower-income earners. We also construct a new county-level uncertainty shock and find that local uncertainty shocks reduce county level durable consumption.
Keywords: Uncertainty; Consumption; Income; Financial Fragility; Households
JEL Codes: D12; D14; E21; G5; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in firm-level uncertainty (D89) | Decline in total compensation (J31) |
| Increase in firm-level uncertainty (D89) | Reduction in durable goods consumption (E21) |
| Increase in firm-level uncertainty (D89) | Increased employment risk (J63) |
| Increase in firm-level uncertainty (D89) | Reduced wages (J31) |
| Increase in firm-level uncertainty (D89) | Greater financial fragility among lower-income earners (G59) |
| Increase in firm-level uncertainty (D89) | Increase in likelihood of default (G33) |
| Increase in firm-level uncertainty (D89) | Decline in credit scores (G51) |