Employee Output Response to Stock Market Wealth Shocks

This paper uses individual-level data linking stock investments to work performance to examine how changes in stock market wealth affect worker output. We document a 10% increase in monthly stock investment returns is associated with a decrease of 3.8% in the same investor’s next-month work output. The negative output response is not driven by concurrent economic conditions and is pronounced when focusing on more idiosyncratic stock investment returns. Moreover, it is unexplained by investor-specific liquidity needs. Consistent with the wealth-effect interpretation, the effect is stronger for higher-income workers. In the negative-return domain, interestingly, a decline in stock investment returns is followed by lower output, especially for male, younger, less educated, and lower-income workers. Overall, our results highlight a novel channel of transmitting stock market fluctuation to the real economy through labor supply.