The Pass-Through of Uncertainty Shocks to Households
49 Pages Posted: 18 Sep 2020 Last revised: 26 Feb 2022
Date Written: February 24, 2022
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. Increased firm-level uncertainty reduces total compensation, especially variable pay, and workers reduce their durable goods consumption in response. Such shocks also lead to greater financial fragility among lower-income earners. Constructing a new county-level uncertainty shock, we find that local uncertainty shocks reduce county-level durable consumption. Taken together, these findings show that uncertainty shocks can significantly affect local economic activity through households' consumption and savings decisions.
Keywords: Employment Risk, Consumption, Insurance
JEL Classification: D14, D80, E52, G21
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