The Pass-Through of Uncertainty Shocks to Households
24 Pages Posted: 18 Sep 2020
Date Written: August 5, 2020
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: Employment Risk, Consumption, Insurance
JEL Classification: D14, D80, E52, G21
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