The Pass-Through of Uncertainty Shocks to Households
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.
This paper supersedes an earlier paper titled “Household Credit and Local Economic Uncertainty.” We want to thank Equifax Inc. for access to anonymized credit bureau data on borrowers including loan and payment amounts, plus anonymized employment and income information for a sample of borrowers. The views in this paper are those of the authors and do not necessarily reflect those of Equifax Inc., the Federal Reserve Bank of Philadelphia or the Federal Reserve System. We thank Luigi Pistaferri, Jonathan Berk, Darrell Duffie, Scott Baker, Indraneel Chakraborty, Steve Davis, Harry DeAngelo, Matt Kahn, Jose Fillat, Justin Murfin, Pascal Noel, Anna Orlik, Luke Stein, as well as numerous seminar participants. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.