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Do Household Wealth Shocks Affect Productivity? Evidence from Innovative Workers During the Great Recession
Abstract
We investigate how the deterioration of household balance sheets affects worker productivity, and in turn economic downturns. Specifically, we compare the output of innovative workers who experienced differential declines in housing wealth during the financial crisis but were employed at the same firm and lived in the same metropolitan area. We find that, following a negative wealth shock, innovative workers become less productive and generate lower economic value for their firms. The reduction in innovative output is not driven by workers switching to less innovative firms or positions. These effects are more pronounced among workers at greater risk of financial distress.
... Among other things, both Chinese and foreign studies suggest that the wealth effect or cost effect of house prices is related to the mortgage financing of housing assets provided by financial intermediaries, the difference being that mortgage financing poses a liquidity constraint or support to homeowners such as increased leverage. In contrast to the usual domestic and foreign studies that examine the path between house prices and consumption or investment, [Song(2021) [17]] finds that high house prices significantly increase the probability of university graduates leaving local employment, leading to an outflow of highly skilled human capital, while [Bernstein(2021) [18]] uses data on the productivity of workers who experienced a sharp fall in house prices after the 2008 mortgage crisis in the US to find that The productivity of highly innovative workers declined. Both Song Hong (2021) and [Bernstein(2021) [18]] show that the rise and fall in housing values has a very clear real output effect in reality and is not limited to consumption and investment. ...
... In contrast to the usual domestic and foreign studies that examine the path between house prices and consumption or investment, [Song(2021) [17]] finds that high house prices significantly increase the probability of university graduates leaving local employment, leading to an outflow of highly skilled human capital, while [Bernstein(2021) [18]] uses data on the productivity of workers who experienced a sharp fall in house prices after the 2008 mortgage crisis in the US to find that The productivity of highly innovative workers declined. Both Song Hong (2021) and [Bernstein(2021) [18]] show that the rise and fall in housing values has a very clear real output effect in reality and is not limited to consumption and investment. In terms of the financial intermediation channel, most of the literature examines the short-or long-term macro effects of the real estate sector in terms of output efficiency gains. ...
... In contrast to the usual domestic and foreign studies that examine the path between house prices and consumption or investment, [Song(2021) [17]] finds that high house prices significantly increase the probability of university graduates leaving local employment, leading to an outflow of highly skilled human capital, while [Bernstein(2021) [18]] uses data on the productivity of workers who experienced a sharp fall in house prices after the 2008 mortgage crisis in the US to find that The productivity of highly innovative workers declined. Both Song Hong (2021) and [Bernstein(2021) [18]] show that the rise and fall in housing values has a very clear real output effect in reality and is not limited to consumption and investment. In terms of the financial intermediation channel, most of the literature examines the short-or long-term macro effects of the real estate sector in terms of output efficiency gains. ...
One explanation for the counter-cyclical boom in real estate is that real estate sector absorbs over-issued money. In China, local government officials have promoted the boom in the real estate sector by increasing government debt to indirectly finance economic growth, which we call the monetary reservoir mechanism. The monetary reservoir mechanism replaces the traditional monetary transmission mechanism from the central bank to commercial banks, and the fiscal expansion of local governments becomes the main monetary transmission channel. This paper first establishes a theoretical framework to analyze loan contracts, financial intermediaries, fiscal investment, and also financing and then investigates the pathway and long-term equilibrium of this special monetary transmission mechanism using cities-level panel data from 2003 to 2019. The results show that the Monetary reservoir mechanism strengthens the effectiveness of price-based monetary policy through mediating and interaction effects, but reduces the effectiveness of the quantity-based monetary policy. Land finance and financing platforms are policy instruments by local governments that independently influence the effectiveness of the monetary policy. Land finance and autonomous fiscal expansion are important factors driving China's economic growth and aggregate demand recovery after the financial crisis. However, the concern is that the monetary reservoir mechanism necessarily ends with large-scale monetization of fiscal deficits.
... According to the statistics from the annual reports of listed companies in China, the proportion of listed companies in the Shanghai and Shenzhen Stock Exchanges that distribute dividends increased from 50.21% in 2007 to 78.28% in 2017, and then dropped to 65.9% in 2022. The dividend payout ratio fluctuated from 20.74% in 2007 to 30.96% in 2017, and then dropped to 29.95% in 2022. The proportion of listed companies with exceptionally large dividends (the "Shenzhen Stock Exchange Listed Company Self-Discipline Supervision Guidelines No. 1-Standard Operation of Main Board Listed Companies (Revised in 2023)" issued by the Shenzhen Stock Exchange pointed out that special attention and enhanced disclosure are required when the cash dividend amount reaches or exceeds 100% of the current net profit attributable to the listed company) increased from 1.31% in 2007 to 3.33% in 2022. ...
... The scale of innovation capital investments and companies' willingness to innovate are the key factors for the success of green innovation projects and an important driver for the green transformation and modernization of companies [30,31]. From the perspective of corporate governance capabilities, principal-agent problems such as executives' on-the-job consumption and shareholders' hollowing-out behaviors inhibit firms' green innovation [32,33]. ...
Green innovation is an important driver for the sustainable development of the real economy and the realization of a green transformation. Previous studies have paid less attention to the relationship between dividend payments and the persistence of green innovation and neglected the mechanism of knowledge management on the relationship between the two. Using Chinese listed non-financial companies from 2007 to 2022, this paper empirically investigates the effect and mechanism of dividend payment on corporate green innovation persistence based on two perspectives: principal–agent theory and incentive theory, using Tobit and negative binomial models. It was found that there is a non-linear inverted U-shaped relationship between dividend payments and the persistence of green innovation. Dividend payments influence the persistence of green innovation through agency costs and knowledge management capabilities. Both independent director networks and knowledge spillovers have a positive impact on the relationship between the two. Based on firms’ characteristics, the inverted U-shaped relationship between dividend payment and green innovation persistence is found to be more significant for non-state-owned firms and high-tech firms. Depending on the shareholder type, the inverted U-shaped curve between dividend payments for shareholding managers and green innovation persistence is the steepest. This study enriches the relevant literature on green innovations. In addition, it provides companies with a reference for formulating appropriate dividend policies, improving knowledge management capabilities, and improving the persistence of green innovation at a firm level.
... Third, the limited presence of arbitrageurs in housing markets suggests that house prices can deviate from their fundamental values for extended periods. 2 These market frictions imply that a partner's higher competence does not necessarily lead to greater returns from the housing market, particularly when owning only one or two properties. Lastly, using gains or losses on housing as an exogenous variation in wealth is consistent with recent studies (e.g., Aslan 2022;Bernstein et al. 2021;Dimmock et al. 2021). ...
... Our study also contributes to a growing literature on the impact of personal wealth. Recent research documents that variations in housing wealth impact job performance of equity analysts, innovative workers, and financial advisors (Bernstein et al. 2021;Aslan 2022;Dimmock et al. 2021). Our study adds to this line of literature by showing that house wealth also affects audit partners' behavior. ...
Using the market values of audit partners’ houses as a measure of their personal wealth, we find that wealthier U.S. partners provide higher-quality audits, as evidenced by fewer material restatements, fewer material SEC comment letters, and higher audit fees. A battery of falsification tests shows that these findings are not driven by the matching of wealthier partners with clients with higher financial reporting quality. Our additional analyses suggest two explanations: greater personal wealth both incentivizes partners to exert more effort in delivering high-quality audits and reveals partners’ audit competence.
... The output of STIK investments is affected by many factors beyond spending, inputs, capacity, and labour. The types and quantity of innovations change in response to macroeconomic circumstances (e.g., expansion, recession); therefore, evaluating performance relative to such changing market forces can improve one's understanding of a potential partner's outputs (Ortiz & Salas Fumas, 2020;Bernstein et al., 2021). Some indicators quantify features of the innovation environment to help facilitate product innovation. ...
... The results are stronger for advisors with lower career risk from committing misconduct and for advisors with greater borrowing constraints. Bernstein et al. (2021) use changes in housing wealth experienced by innovative workers during the financial crisis to compare individuals working at the same firm and living in the same metropolitan area who experience different housing wealth declines during the Great Recession. They find that workers who experience a negative shock to housing wealth are less likely to successfully pursue innovative projects, particularly high-impact, complex, or exploratory projects. ...
Real estate agent experience, characteristics, selling strategies, and the structure of incentives affect sales performance. This paper also considers how stressful events in private life, like bankruptcy and criminal records, affect productivity. The empirical approach accounts for the simultaneity of price and liquidity in search markets. Full sample and repeat sales analyses sort out the extent to which these events identify different types of agents versus temporary changes in behavior as well as specific responses in terms of choice of clients versus how those clients are served. The analysis pays particular attention to differences in listing and selling agents. Bankruptcy and crime reports are different types of events and have different effects on agents. The results indicate that bankruptcy (or crime report) signals a certain type of agent with particular business practices who also change their behavior during temporary periods of stress.
... See de Almeida Vilares and Reis (2021) for an empirical analysis of the suitability of a search and matching structure of the wage setting for Portugal.2 SeeBernstein et al. (2021) for an empirical analysis of the effect of negative wealth shocks on the productivity of U.S. innovative workers. It confirms the wealth-productivity relationship proposed.3 ...
With the Great Recession as enduring scenery, this journey dwells in widening the acumen on Continental European Labour Markets, particularly during sizable downturns. The yacht, the Portuguese case, is one of its representative designs. The course departs with the specific mannerisms of wage setting institutions, where the first leg reasons the dynamics of collective bargaining in distressed periods, and the second focuses on the influence of trade unions in this wage setting protocol. Then, we have a regatta for an empirical structural analysis of the dynamics of the wage setting and its resilience under significant distress. The last straw deals with the interaction between the labour market institutions and firm liquidity; and its influence on the dynamics of wages and unemployment throughout recessionary periods. At the final harbour, we have drawn a consistent sketch of our yacht’s blueprints, and hopefully of those alike. As the zenith of the journey, we have broaden the knowledge about its conduct on rough waters.
... This database is linked to Compustat using the bridge file provided by NBER (up to the year 2006) and KPSS's data repository. 6 For later years, we complete the link using a fuzzy matching method based on company name, basic identity information, and innovation profiles, similar to Ma (2020) and Bernstein, McQuade, and Townsend (2021). The main analysis focuses on US public firms between 1986 and 2016. ...
... (column 1), and this holds also when we add county-level controls (column 2) and individual-and countylevel controls (column 3). 39 The consistency of results across all specifications is suggestive of the effects likely being primarily driven by changes in the local market support for innovation, rather than its direct impact on individual productivity (Bernstein et al., 2017). 40 ...
We study the psychological costs of financial constraints and their economic consequences. Using a representative survey of U.S. households, we document the prevalence of financial stress in U.S. households and a strong relationship between financial stress and measures of financial constraints. We incorporate financial stress into an otherwise standard dynamic model of consumption and labour supply. We emphasize two key results. First, both financial stress itself and naivete about financial stress are important components of a psychology-based theory of the poverty trap. Sophisticated households, instead, save extra to escape high-stress states because they understand that doing so alleviates the economic consequences of financial stress. Second, the financial stress channel dampens or reverses the counterfactual large negative wealth effect on labour earnings because relieving stress frees up cognitive resources for productive work. Financial stress also has macroeconomic implications for wealth inequality and fiscal multipliers.
This paper investigates the effects of housing wealth shocks on workers’ career decisions related to job quality and long-term career outcomes. Using a novel data set of career histories in the film industry, we find that homeowners facing greater house price declines reduce participation in high-quality projects but increase involvement in lowquality films. Conversely, renters are not affected by these shocks. Consistent with individuals using home equity during job searches, these shocks have a greater impact on homeowners who extracted home equity during the housing boom. Moreover, house price declines from the housing crisis affect long-term career paths. (JEL J01, R20, D14, G51)
In the current economic environment, the issue of increasing indebtedness is receiving considerable attention. This article delves deeper into a comprehensive analysis of how different forms of debt – from households to corporations to governments – affect innovation performance within the European Union (EU). Since the EU includes 25 different countries, it provides a rich background for this analysis covering the period from 2013 to 2021. By applying regression analysis techniques on a large dataset, this study offers a new insight into the complex relationship between indebtedness and innovation performance. A key part of this analysis is the Global Innovation Index, widely recognized as a metric for evaluating innovation performance among nations. The empirical findings of this study reveal a subtle dynamic: while government debt appears to be a drag on innovation performance, private sector indebtedness, including both households and non-financial institutions, shows a positive effect. This dichotomy underlines the crucial importance of implementing responsible fiscal policies that prioritize the promotion of innovation without jeopardizing financial stability. In addition, the research highlights the importance of fostering collaboration between the public and private sectors, supporting university research, and developing innovation incubators to create a robust innovation environment. In addition, this study not only clarifies the current status, but also identifies areas requiring further research, such as research into other factors influencing the innovation environment. However, it is important to acknowledge the limitations associated with the current understanding of the relationship between debt and innovation. These limitations underscore the need for continued refinement of methodologies and investigation of other factors that may influence this interaction, thereby providing fertile ground for future research efforts. In conclusion, this study contributes to a deeper understanding of how debt dynamics shape innovation outcomes in the EU context.
Political identity and partisanship are salient features of today's society. Using deeds records and voter rolls, we show that current residents are more likely to sell their homes when opposite‐party neighbors move in nearby than when unaffiliated or same‐party neighbors do. This is especially true when the new neighbors are politically active, consistent with an animosity between parties mechanism. We conclude that affective polarization is not limited to purely political settings and affects one of the household's most important financial decisions, their home transactions.
We view innovation investments as real options and explore the implications of risk (volatility) as well as a newly defined outcome independent measure of ambiguity (Knightian uncertainty) for innovation decisions. The empirical analysis uses stock returns to compute an implementable measure of ambiguity. We also control for risk and other determinants of innovation. We find a consistently significant negative effect of ambiguity on R&D, patents, and citations, as predicted. The effect of risk on R&D is positive and significant, but the corresponding effect on patents and citations is negative and significant. Ambiguity matters more for high-tech firms, consistent with intuition.
Real-world contractual agreements between firms are often incomplete, leading to suboptimal investment and loss of value in supply chain relationships. To what extent can blockchain technology help alleviate problems arising from contractual incompleteness? We examine this issue by exploiting a quasi-natural experiment based on the staggered adoption of U.S. state laws that increased firms’ in-state ability to develop, adopt, and use blockchain technology. We find that, after exposure to a pro-blockchain law, firms with greater asset specificity exhibit more positive changes to Tobin’s Q, research and development, and blockchain-related innovation. Also, such firms appear to rely less on vertical integration, form more strategic alliances, and shift their emphasis to less geographically proximate customers. Overall, our results suggest that blockchain technology can help firms remedy constraints and inefficiencies arising from contractual incompleteness.
This paper has been accepted by Lin William Cong, Special Issue of Management Science: Blockchains and crypto economics.
Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2022.04139 .
We study the causal effect of liquidity constraints on individual labor market outcomes by exploiting the 1992 mortgage reform in Denmark, which for the first time allowed homeowners to borrow against housing equity for nonhousing purposes. Following the reform, liquidity‐constrained homeowners increased debt levels and had higher earnings growth and lower employment rates. The option to borrow against housing equity enabled liquidity‐constrained individuals to move to high‐wage jobs and invest in valuable human and physical capital. The results imply that relaxing household liquidity constraints during recessions can create better job matches, potentially increasing earnings and output in the longer run.
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Using the near universe of U.S. consumer credit cards, we show that banks transmit their wholesale funding shocks to consumers by reducing their credit card limits. Credit-constrained consumers who are unable to hedge against the transmitted shock by accessing other credit cards experience a stronger and more persistent reduction in aggregate credit card limits at the consumer level. Consequently, these credit-constrained consumers reduce their aggregate credit card borrowing. Our results document a credit card lending channel for the transmission of adverse bank shocks and show who bears the costs of fragile bank funding structures.
Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
We examine innovation following the Great Depression using data on a century's worth of U.S. patents and a difference-in-differences design that exploits regional variation in the crisis severity. Harder-hit areas experienced large and persistent declines in independent patenting, mostly reflecting the disruption in access to finance during the crisis. This decline was larger for young and inexperienced inventors and lower-quality patents. In contrast, innovation by large firms increased, especially among young and inexperienced inventors. Overall, the Great Depression contributed to the decline in technological entrepreneurship and accelerated the shift of innovation into larger firms.
Models of creative destruction assume that recessions are periods of reallocation and disruption, generating new ideas that catapult new firms to the frontier. However, current empirical evidence suggests that research and development (R&D) expenditures and patenting are procyclical, not countercyclical. In this paper, we introduce new insights to enrich this debate. First, using panel data on the quality of innovation between 1980 and 2019, we document that the quality of innovation is countercyclical: Innovations produced during busts have a larger effect on the path of future research than those developed during booms. Second, we investigate several additional patterns on the composition of R&D. We find that the procyclicality of R&D is concentrated among firms that are more financially constrained, and that time allocated towards basic science (applied) research is countercyclical (procyclical). These results highlight the importance of composition effects among not only the organizations that contribute to innovation over the business cycle, but also the tasks that employees within these organizations perform.
This dissertation has three independent chapters. The first chapter investigates how the environmental liability of lenders affects debtors' behavior. I use U.S. Census Bureau micro-data and the passage of the Lender Liability Act as a novel identification strategy to answer this question. Firms increase on-site pollution, cut investment in abatement technology, and incur 17.54% more environmental regulatory violations when secured lenders become less responsible for the cleanup cost of their collateral. The effects are stronger for firms close to bankruptcy or with high environmental risks. This lower environmental compliance slightly benefits employment, but does not change wages or production. Overall, financial constraints that may be alleviated due to reduced lender liability do not result in pollution mitigation investment or increased production; instead, my findings suggest that reduced lender liability lessens banks’ incentives to influence the practices of their debtors. The second chapter studies how Private Equity (PE) firms affect firms' environmental outcomes in the oil and gas industry. On average PE ownership leads to a 70% reduction in the use of toxic chemicals and a 50% reduction in satellite-based measures of CO2 emissions. However, this average effect hides significant heterogeneities. PE-backed firms increase pollution in locations and periods where environmental liability risk is low, as shown by a novel natural experiment that reduced these risks for projects located on federal and Native American territories. Overall, high-powered incentives to maximize shareholder value may benefit environmental outcomes when the risk of environmental regulation is high. The third chapter is joint work with J. Anthony Cookson, Erik Gilje, Rawley Heimer. We study the effect of personal wealth on entrepreneurial decisions using data on mineral payments from Texas shale drilling to individuals throughout the United States. Large cash windfalls increase business formation by 0.8 to 2.1 percentage points, but do not affect transitions to self-employment. By contrast, cash windfalls significantly extend self-employment spells, but do not affect the duration of business ownership. Our findings help reconcile contrasting findings in prior work: liquidity constraints have different effects on entrepreneurial activity that may depend on the entrepreneur’s motivations.
The garment industry is one of the main contributors to Indonesia's GDP. However, work-life balance has become a crucial issue for workers in this industry. This study aims to investigate the antecedents and outcomes of work-life balance among workers in the garment industry. More specifically, we examine the effect of asset ownership and working conditions (health conditions, compensation, and working hours) affect work-life balance. Furthermore, we also examine the effect of work-life balance on job satisfaction, life satisfaction, and turnover intention. We collected data using a survey of 3691 garment workers in Central Java, West Java, DI Yogyakarta, DKI Jakarta, and Banten. The analysis shows that work-life balance could increase workers' life satisfaction and job satisfaction. Interestingly, health condition is found out to be the important variable that could improve work-life balance significantly.
By linking sell-side equity analysts to their deed records and LinkedIn profiles, I show that analysts with higher exposure to negative wealth shocks issue more pessimistic and less accurate forecasts. The effects are stronger when analysts have higher leverage in their homes and face career concerns. I also find that stocks recommended by exposed analysts underperform those of non-exposed counterparts, by an amount that is significant and economically large in magnitude. The results remain robust to unobserved skill differences, the potential endogeneity of housing prices, the self-selection of analysts into neighborhoods with certain traits, and placebo tests where housing wealth shocks are randomized across analysts. Collectively, this study provides new evidence on if and how personal wealth shocks impact analysts' work productivity and forecast behavior.
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Schumpeter (1939) claims that recessions are periods of “creative destruction,” concentrating innovation that is useful for the long-term growth of the economy. However previous research finds that standard measures of firms’ innovation, such as R&D expenditures or raw patent counts, concentrate in booms. We argue that these measures do not capture shifts in firms’ innovative search strategies. We contemplate firms’ choice between exploration vs. exploitation over the business cycle and find evidence with more nuanced measures of patent characteristics that firms shift towards exploration during contractions and exploitation during expansions, with a stronger effect for firms in more cyclical industries.
Using U.S. household-level data and plausibly exogenous variation in the location-timing of home purchases with a single lender, I find that negative home equity causes a 2% to 6% reduction in household labor supply. Supporting causality, households are observationally equivalent at origination and equally sensitive to local housing shocks that do not cause negative equity. Results also hold comparing purchases within the same year-MSA that differ by only a few months. Though multiple channels are likely at work, evidence of nonlinear effects is broadly consistent with costs associated with housing lock and financial distress.
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We characterize the factors that determine who becomes an inventor in the United States, focusing on the role of inventive ability (“nature”) versus environment (“nurture”). Using deidentified data on 1.2 million inventors from patent records linked to tax records, we first show that children’s chances of becoming inventors vary sharply with characteristics at birth, such as their race, gender, and parents’ socioeconomic class. For example, children from high-income (top 1%) families are 10 times as likely to become inventors as those from below-median income families. These gaps persist even among children with similar math test scores in early childhood—which are highly predictive of innovation rates—suggesting that the gaps may be driven by differences in environment rather than abilities to innovate. We directly establish the importance of environment by showing that exposure to innovation during childhood has significant causal effects on children’s propensities to invent. Children whose families move to a high-innovation area when they are young are more likely to become inventors. These exposure effects are technology class and gender specific. Children who grow up in a neighborhood or family with a high innovation rate in a specific technology class are more likely to patent in exactly the same class. Girls are more likely to invent in a particular class if they grow up in an area with more women (but not men) who invent in that class. These gender- and technology class–specific exposure effects are more likely to be driven by narrow mechanisms, such as role-model or network effects, than factors that only affect general human capital accumulation, such as the quality of schools. Consistent with the importance of exposure effects in career selection, women and disadvantaged youth are as underrepresented among high-impact inventors as they are among inventors as a whole. These findings suggest that there are many “lost Einsteins”—individuals who would have had highly impactful inventions had they been exposed to innovation in childhood—especially among women, minorities, and children from low-income families.
This paper studies the effects of financial distress on workers’ productivity, using detailed data from the public school system in Texas. We show that the student passing rate in the median-sized grade decreases by 1.2 percentage points following a declaration of bankruptcy by one teacher in the grade. The effect of financial distress increases with the complexity of the task. Overall, our results suggest a potential feedback effect of worker financial distress on local economic conditions and thus contribute to the understanding of the propagation, and potential amplification, of shocks through a local economy.
We use a labor‐search model to explain why the worst employment slumps often follow expansions of household debt. We find that households protected by limited liability suffer from a household‐debt‐overhang problem that leads them to require high wages to work. Firms respond by posting high wages but few vacancies. This vacancy posting effect implies that high household debt leads to high unemployment. Even though households borrow from banks via bilaterally optimal contracts, the equilibrium level of household debt is inefficiently high due to a household‐debt externality. We analyze the role that a financial regulator can play in mitigating this externality.
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We introduce the first publicly available dataset of constant-quality house price indices for counties, ZIP codes, and census tracts in the United States, at an annual frequency, over a 40 year period. Between 1990 and 2015, house price gradients within large cities steepen, documenting a reversal of decades of increasing relative desirability of suburban locations. Real house prices are more likely to be non-stationary near the centers of large cities. Within-city differences in house price appreciation at the ZIP code level are, on average, about half of between-city differences, though this ratio varies depending on the time period and city size.
We exploit large exogenous changes in housing wealth to examine the impact of wealth gains and losses on individual health. In UK household, panel data house price increases, which endow owners with greater wealth, lower the likelihood of home owners exhibiting a range of non‐chronic health conditions and improve their self‐assessed health with no effect on their psychological health. These effects are not transitory and persist over a 10‐year period. Using a range of fixed effects models, we provide robust evidence that these results are not biased by reverse causality or omitted factors. For owners' wealth gains affect labour supply and leisure choices indicating that house price increases allow individuals to reduce intensity of work with commensurate health benefits. © 2016 The Authors. Health Economics Published by John Wiley & Sons, Ltd.
Burnout is a common metaphor for a state of extreme psychophysical exhaustion, usually work-related. This book provides an overview of the burnout syndrome from its earliest recorded occurrences to current empirical studies. It reviews perceptions that burnout is particularly prevalent among certain professional groups - police officers, social workers, teachers, financial traders - and introduces individual inter- personal, workload, occupational, organizational, social and cultural factors. Burnout deals with occurrence, measurement, assessment as well as intervention and treatment programmes.; This textbook should prove useful to occupational and organizational health and safety researchers and practitioners around the world. It should also be a valuable resource for human resources professional and related management professionals.
Professional burnout is a stress-related disorder, having mental exhaustion due to work stress as its most important characteristic. Burned out individuals also often complain about attentional problems. However, it is currently not clear whether such complaints are based on true cognitive deficits or whether they merely reflect the way burned out individuals rate their own cognitive performance. To confirm the cognitive complaints we used a cognitive failure questionnaire (CFQ) to assess the level of self-reported attentional difficulties in daily life. We also measured performance on tasks of sustained attention and response inhibition (the SART and the Bourdon-Wiersma Test). We compared three groups: (1) a group of ‘burned out’ individuals (n=13) who stopped working due to their symptoms and sought professional treatment; (2) teachers at a vocational training institute (n=16) who reported high levels of burnout symptoms but continued to work; and (3) teachers from the same institute (n=14) who reported no burnout symptoms. The level of burnout symptoms was found to be significantly related to the number of cognitive failures in daily life, and to inhibition errors and performance variability in the attentional tasks. To our knowledge, explicit tests of objective cognitive deficits in burned out individuals have not been conducted before. Consequently, this is the first study to indicate that burnout is associated with difficulties in voluntary control over attention and that the level of such difficulties varies with the severity of burnout symptoms.
This paper investigates the relationship between product market competition (PMC) and innovation. A growth model is developed in which competition may increase the incremental profit from innovating; on the other hand, competition may also reduce innovation incentives for laggards. There are four key predictions. First, the relationship between product market competition (PMC) and innovation is an inverted U-shape. Second, the equilibrium degree of technological neck-and-neckness' among firms should decrease with PMC. Third, the higher the average degree of neck-and-neckness' in an industry, the steeper the inverted-U relationship. Fourth, firms may innovate more if subject to higher debt-pressure, especially at lower levels of PMC. We confront these predictions with data on UK firms' patenting activity at the US patenting office. They are found to accord well with observed behavior.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Evidence on the “funding gap“ for investment innovation is surveyed. The focus is on financial market reasons for underinvestment that exist even when externality-induced underinvestment is absent. We conclude that while small and new innovative firms experience high costs of capital that are only partly mitigated by the presence of venture capital, the evidence for high costs of R&D capital for large firms is mixed. Nevertheless, large established firms do appear to prefer internal funds for financing such investments and they manage their cash flow to ensure this. Evidence shows that there are limits to venture capital as a solution to the funding gap, especially in countries where public equity markets for VC exit are not highly developed. We conclude by suggesting areas for further research.
We investigate the relationship between foreclosures and hospital visits using data on all foreclosures and all hospital and emergency room visits from four states that were among the hardest hit by the foreclosure crisis. We find that living in a neighborhood with a spike in foreclosures is associated with significant increases in urgent unscheduled visits, including increases in visits for preventable conditions. The estimated effects cannot be accounted for by increasing unemployment, declines in housing prices, migration, or by people switching from out-patient providers to hospitals. We conclude that the estimates are consistent with the hypothesis that stress associated with foreclosure harmed people’s health.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Burnout is a prolonged response to chronic emotional and interpersonal stressors on the job, and is defined by the three dimensions of exhaustion, cynicism, and inefficacy. The past 25 years of research has established the complexity of the construct, and places the individual stress experience within a larger organizational context of people's relation to their work. Recently, the work on burnout has expanded internationally and has led to new conceptual models. The focus on engagement, the positive antithesis of burnout, promises to yield new perspectives on interventions to alleviate burnout. The social focus of burnout, the solid research basis concerning the syndrome, and its specific ties to the work domain make a distinct and valuable contribution to people's health and well-being.
We investigate whether and to what extent shareholder litigation shapes corporate innovation by examining the staggered adoption of universal demand laws in 23 states from 1989 to 2005. These laws impose obstacles against shareholders filing derivative lawsuits, thereby significantly reducing managers’ litigation risk. Using a difference-in-differences design and a matched sample, we find that, following the passage of the laws, firms invested more in research and development, produced more patents in new technological classes and more patents based on new knowledge, generated more patents with significant impacts, and achieved higher patent value. Our findings suggest that the external pressure imposed by shareholder litigation discourages managers from engaging in explorative innovation activities.
This paper was accepted by David Simchi-Levi, finance.
While a substantial literature has examined the causes of mortgage foreclosure, there has been relatively little work on the consequences of foreclosure for the borrowers themselves. Using a large sample of anonymous credit bureau records, observed quarterly from 1999Q1 through 2010Q1, we examine the credit experiences of almost 350,000 borrowers before and after their mortgage foreclosure. Our analysis documents the substantial declines in credit scores that accompany foreclosure and examines the length of time it takes individuals to return their credit scores to pre-delinquency levels. The results suggest that, particularly for prime borrowers, credit score recovery comes slowly, if at all. This appears to be driven by persistently higher levels of delinquency on consumer credit (such as auto and credit card loans) in the years that follow foreclosure. Our results also indicate that the experiences of individuals whose mortgages entered foreclosure from 2007 to 2009 have followed a similar path to borrowers foreclosed earlier in the decade, though post-foreclosure delinquency rates for the recently foreclosed have been higher and, consequently, credit score recovery appears to be taking longer.
This paper studies how hedge fund activism impacts corporate innovation. Firms targeted by activists improve their innovation efficiency over the five-year period following hedge fund intervention. Despite a tightening in research and development (R&D) expenditures, target firms increase innovation output, as measured by both patent counts and citations, with stronger effects among firms with more diversified innovation portfolios. Reallocation of innovative resources, redeployment of human capital, and change to board-level expertise all contribute to improve target firms’ innovation. Additional tests help isolate the effect of intervention from alternative explanations, including mean reversion, sample attrition, voluntary reforms, or activist stock-picking.
This paper uses new data from the PSID to quantify the relative importance of negative equity versus ability to pay, in driving mortgage defaults between 2009 and 2013. These data allow us to construct household budgets sets that provide better measures of ability to pay. Changes in ability to pay have large estimated effects. Job loss has an equivalent effect on the propensity to default as a 35% decline in equity. Strategic motives are also found to be quantitatively important, as we estimate more than 38% of households in default could make their mortgage payments without reducing consumption.
Received September 29, 2015; editorial decision June 2, 2017 by Editor Philip Strahan. Authors have furnished an Internet Appendix, which is available on the Oxford University PressWeb site next to the link to the final published paper online.
Importance
A sudden loss of wealth—a negative wealth shock—may lead to a significant mental health toll and also leave fewer monetary resources for health-related expenses. With limited years remaining to regain lost wealth in older age, the health consequences of these negative wealth shocks may be long-lasting.
Objective
To determine whether a negative wealth shock was associated with all-cause mortality during 20 years of follow-up.
Design, Setting, and Participants
The Health and Retirement Study, a nationally representative prospective cohort study of US adults aged 51 through 61 years at study entry. The study population included 8714 adults, first assessed for a negative wealth shock in 1994 and followed biennially through 2014 (the most recent year of available data).
Exposures
Experiencing a negative wealth shock, defined as a loss of 75% or more of total net worth over a 2-year period, or asset poverty, defined as 0 or negative total net worth at study entry.
Main Outcomes and Measures
Mortality data were collected from the National Death Index and postmortem interviews with family members. Marginal structural survival methods were used to account for the potential bias due to changes in health status that may both trigger negative wealth shocks and act as the mechanism through which negative wealth shocks lead to increased mortality.
Results
There were 8714 participants in the study sample (mean [SD] age at study entry, 55 [3.2] years; 53% women), 2430 experienced a negative wealth shock during follow-up, 749 had asset poverty at baseline, and 5535 had continuously positive wealth without shock. A total of 2823 deaths occurred during 80 683 person-years of follow-up. There were 30.6 vs 64.9 deaths per 1000 person-years for those with continuously positive wealth vs negative wealth shock (adjusted hazard ratio [HR], 1.50; 95% CI, 1.36-1.67). There were 73.4 deaths per 1000 person-years for those with asset poverty at baseline (adjusted HR, 1.67; 95% CI, 1.44-1.94; compared with continuously positive wealth).
Conclusions and Relevance
Among US adults aged 51 years and older, loss of wealth over 2 years was associated with an increased risk of all-cause mortality. Further research is needed to better understand the possible mechanisms for this association and determine whether there is potential value for targeted interventions.
We establish the importance of team-specific capital in the typical inventor's career. Using administrative tax and patent data for the population of US patent inventors from 1996 to 2012, we find that an inventor's premature death causes a large and long-lasting decline in their co-inventor's earnings and citation-weighted patents (−4 percent and −15 percent after 8 years, respectively). After ruling out firm disruption, network effects, and top-down spillovers as main channels, we show that the effect is driven by close-knit teams and that team-specific capital largely results from an “experience'' component increasing collaboration value over time.
We study the effect of wealth on labor supply using the randomized assignment of monetary prizes in a large sample of Swedish lottery players. Winning a lottery prize modestly reduces earnings, with the reduction being immediate, persistent, and quite similar by age, education, and sex. A calibrated dynamic model implies lifetime marginal propensities to earn out of unearned income from -0.17 at age 20 to -0.04 at age 60, and labor supply elasticities in the lower range of previously reported estimates. The earnings response is stronger for winners than their spouses, which is inconsistent with unitary household labor supply models.
The National Establishment Time Series (NETS) is a private sector source of U.S. business microdata. Researchers have used state-specific NETS extracts for many years, but relatively little is known about the accuracy and representativeness of the nationwide NETS sample. We explore the properties of NETS as compared to official U.S. data on business activity: The Census Bureau's County Business Patterns (CBP) and Nonemployer Statistics (NES) and the Bureau of Labor Statistics' Quarterly Census of Employment and Wages (QCEW). We find that the NETS universe does not cover the entirety of the Census-based employer and nonemployer universes, but given certain restrictions NETS can be made to mimic official employer datasets with reasonable precision. The largest differences between NETS employer data and official sources are among small establishments, where imputation is prevalent in NETS. The most stringent of our proposed sample restrictions still allows scope that cover s about three quarters of U.S. private sector employment. We conclude that NETS microdata can be useful and convenient for studying static business activity in high detail.
We propose a new measure of the economic importance of each innovation. Our measure uses newly collected data on patents issued to U.S. firms in the 1926 to 2010 period, combined with the stock market response to news about patents. Our patent-level estimates of private economic value are positively related to the scientific value of these patents, as measured by the number of citations the patent receives in the future. Our new measure is associated with substantial growth, reallocation, and creative destruction, consistent with the predictions of Schumpeterian growth models. Aggregating our measure suggests that technological innovation accounts for significant medium-run fluctuations in aggregate economic growth and TFP. Our measure contains additional information relative to citation-weighted patent counts; the relation between our measure and firm growth is considerably stronger. Importantly, the degree of creative destruction that is associated with our measure is higher than previous estimates, confirming that it is a useful proxy for the private valuation of patents. © The Author(s) 2016. Published by Oxford University Press, on behalf of the President and Fellows of Harvard College.
Do firms learn from other firms' human resource allocation decisions? This paper studies this question in the context of worker promotions, which according to theory serve as informative signals to external employers under asymmetric learning about employee ability. Using variation in the timing of promotion reports on LinkedIn CVs, we implement a differences-in-differences strategy to demonstrate that online promotion reports increase recruiter-initiated worker contacts ("InMails''). The signaling impact of promotions is concentrated among those who have recently attracted previous recruiter interest, consistent with a higher expected value of firm information acquisition among such workers.
Using individual patient records for every hospital in California from 1983 to 2011, we find a strong inverse link between daily stock returns and hospital admissions, particularly for psychological conditions such as anxiety, panic disorder, and major depression. The effect is nearly instantaneous (within the same day) for psychological conditions, suggesting that anticipation over future consumption directly influences instantaneous utility.
This paper highlights the importance of middle-class and high-FICO borrowers for the mortgage crisis. Contrary to popular
belief, which focuses on subprime and poor borrowers, we show that mortgage originations increased for borrowers across all
income levels and FICO scores. The relation between mortgage growth and income growth at the individual level remained positive
throughout the pre-2007 period. Finally, middle-income, high-income, and prime borrowers all sharply increased their share
of delinquencies in the crisis. These results are consistent with a demand-side view, where homebuyers and lenders bought
into increasing house values and borrowers defaulted after prices dropped.
Received July 30, 2015; accepted January 27, 2016 by Editor Philip Strahan.
Given documented links between individual socioeconomic status (SES) and health, it is likely that—in addition to its impacts on individuals' wallets and bank accounts—the Great Recession also took a toll on individuals' disease and mortality risk. Exploiting a quasi-natural experiment design, this study utilizes nationally representative, longitudinal data from the National Social Life, Health, and Aging Project (NSHAP) (2005–2011) (N = 930) and individual fixed effects models to examine how household-level wealth shocks experienced during the Great Recession relate to changes in biophysiological functioning in older adults. Results indicate that wealth shocks significantly predicted changes in physiological functioning, such that losses in net worth from the pre-to the post-Recession period were associated with increases in systolic blood pressure and C-reactive protein over the six year period. Further, while the association between wealth shocks and changes in blood pressure was unattenuated with the inclusion of other indicators of SES, psychosocial well-being, and health behaviors in analytic models, we document some evidence of mediation in the association between changes in wealth and changes in C-reactive protein, which suggests specificity in the social and biophysiological mechanisms relating wealth shocks and health at older ages. Linking macro-level conditions, meso-level household environments, and micro-level biological processes, this study provides new insights into the mechanisms through which economic inequality contributes to disease and mortality risk in late life.
We show that venture capitalists' (VCs) on-site involvement with their portfolio companies leads to an increase in both innovation and the likelihood of a successful exit. We rule out selection effects by exploiting an exogenous source of variation in VC involvement: the introduction of new airline routes that reduce VCs' travel times to their existing portfolio companies. We confirm the importance of this channel by conducting a large-scale survey of VCs, of whom almost 90% indicate that direct flights increase their interaction with their portfolio companies and management, and help them better understand companies' activities. This article is protected by copyright. All rights reserved
The financial crisis and ensuing Great Recession left the US economy in an injured state. In 2013, output was 13% below its trend path from 1990 through 2007. Part of this shortfall— 2.2 percentage points out of the 13—was the result of lingering slackness in the labor market in the form of abnormal unemployment and substandard weekly hours of work. The single biggest contributor was a shortfall in business capital, which accounted for 3.9 percentage points. The second largest was a shortfall of 3.5 percentage points in total factor productivity. The fourth was a shortfall of 2.4 percentage points in labor- force participation. I discuss these four sources of the injury in detail, focusing on identifying state variables that may or may not return to earlier growth paths. The conclusion is optimistic about the capital stock and slackness in the labor market and pessimistic about reversing the declines in total- factor productivity and the part of the participation shortfall not associated with the weak labor market. © 2015 by the National Bureau of Economic Research. All rights reserved.
This paper assesses the relative importance of two key drivers of mortgage default: negative equity and illiquidity. To do so, the authors combine loan-level mortgage data with detailed credit bureau information about the borrower's broader balance sheet. This gives them a direct way to measure illiquid borrowers: those with high credit card utilization rates. The authors find that both negative equity and illiquidity are significantly associated with mortgage default, with comparably sized marginal effects. Moreover, these two factors interact with each other: The effect of illiquidity on default generally increases with high combined loan-to-value ratios (CLTV), though it is significant even for low CLTV. County-level unemployment shocks are also associated with higher default risk (though less so than high utilization) and strongly interact with CLTV. In addition, having a second mortgage implies significantly higher default risk, particularly for borrowers who have a first-mortgage LTV approaching 100 percent.
Using data from the American Time Use Survey between 2003 and 2010, we document that home production absorbs roughly 30 percent of foregone market work hours at business cycle frequencies. Leisure absorbs roughly 50 percent of foregone market work hours, with sleeping and television watching accounting for most of this increase. We document significant increases in time spent on shopping, child care, education, and health. Job search absorbs between 2 and 6 percent of foregone market work hours. We discuss the implications of our results for business cycle models with home production and non-separable preferences. (JEL D31, E32, J22)
Consumer bankruptcy is one of the largest social insurance programs in the United States, but little is known about its impact on debtors. We use 500,000 bankruptcy filings matched to administrative tax and foreclosure data to estimate the impact of Chapter 13 bankruptcy protection on subsequent outcomes. Exploiting the random assignment of bankruptcy filings to judges, we find that Chapter 13 protection increases annual earnings by $5,562, decreases five-year mortality by 1.2 percentage points, and decreases five-year foreclosure rates by 19.1 percentage points. These results come primarily from the deterioration of outcomes among dismissed filers, not gains by granted filers.
The sharp decline in home values in many industrialized and developing countries was one of the most evident facets of the global economic recession of 2008. Using data from the Panel Study of Income Dynamics (PSID) for 2007-2011, this study examines how the decline in housing wealth affected the psychological and physical health and health-related behaviors of 4007 U.S. households who were homeowners in 2007. We focus on two mechanisms that could account for how the drop in housing wealth affects health: increase in stress and negative changes in health-related behaviors. Controlling for the changes in non-housing wealth and employment status during the recession, the decline in housing wealth is associated with a small but statistically significant increase in psychological distress. Psychological health deteriorates more as the housing wealth relative to total wealth decreases. Finally, homeowners who have difficulties with mortgage payments report substantial increases in psychological distress and have higher rates of depression. These findings, combined with limited evidence of the change in health-related behaviors, suggest that the increase in stress is the main cause of the adverse health outcomes.
Copyright © 2015 Elsevier Ltd. All rights reserved.
We show that deterioration in household balance sheets, or the housing net worth channel, played a significant role in the sharp decline in U.S. employment between 2007 and 2009. Counties with a larger decline in housing net worth experience a larger decline in non-tradable employment. This result is not driven by industry-specific supply-side shocks, exposure to the construction sector, policy-induced business uncertainty, or contemporaneous credit supply tightening. We find little evidence of labor market adjustment in response to the housing net worth shock. There is no significant expansion of the tradable sector in counties with the largest decline in housing net worth. Further, there is little evidence of wage adjustment within or emigration out of the hardest hit counties.
This paper examines the impact of the conglomerate form on the scale and novelty of corporate Research and Development (R&D) activity. I exploit a quasi-experiment involving failed mergers to generate exogenous variation in acquisition outcomes of target firms. A difference-in-differences estimation reveals that, relative to failed targets, firms acquired in diversifying mergers produce both a smaller number of innovations and also less-novel innovations, where innovations are measured using patent-based metrics. The treatment effect is amplified if the acquiring conglomerate operates a more active internal capital market and is largely driven by inventors becoming less productive after the merger rather than inventor exits. Concurrently, acquirers move R&D activity outside the boundary of the firm via the use of strategic alliances and joint ventures. There is complementary evidence that conglomerates with more novel R&D tend to operate with decentralized R&D budgets. These findings suggest that conglomerate organizational form affects the allocation and productivity of resources.
Employees’ personal lives affect their attitudes and behaviors at workplace. Financially stressed employees often bring their concerns to the workplace. This study focuses on the relationships between financial stress and work outcomes such as pay satisfaction, work time use, and absenteeism. The data in this research were collected from an insurance company in three mid-western states. A total of 262 questionnaires were used in the data analysis. Significant relationships were found between financial stress and work outcomes including pay satisfaction, work time use and absenteeism. People who had higher levels of financial stress had lower levels of pay satisfaction, were more likely to waste their work time, and more frequently absent from work. Employers might reduce absenteeism and productivity if they can help employees reduce their financial stress by offering effective workplace financial education.
Do sudden, large wealth losses affect mental health? We use exogenous variation in the interview dates of the 2008 Health and Retirement Study to assess the impact of large wealth losses on mental health among older U.S. adults. We compare cross-wave changes in wealth and mental health for respondents interviewed before and after the October 2008 stock market crash. We find that the crash reduced wealth and increased feelings of depression and use of antidepressant drugs, and that these effects were largest among respondents with high levels of stock holdings prior to the crash. These results suggest that sudden wealth losses cause immediate declines in subjective measures of mental health. However, we find no evidence that wealth losses lead to increases in clinically-validated measures of depressive symptoms or indicators of depression.
This paper documents the role of the collateral lending channel to facilitate small business starts and self-employment in the period before the financial crisis of 2008. We document that between 2002 and 2007 areas with a bigger run up in house prices experienced a strong increase in employment in small businesses compared to employment in large firms in the same industries. This increase in small business employment was particularly pronounced in (1) industries that need little startup capital and can thus more easily be financed out of increases in housing as collateral; (2) manufacturing industries where goods are shipped over long distances, which rules out that local demand is driving the expansion. We show that this effect is separate from an aggregate demand channel that relies on home equity based borrowing leading to increased demand and employment creation.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Using individual patient records for every hospital in California from 1983-2011, we find a strong inverse link between daily stock returns and hospital admissions, particularly for psychological conditions such as anxiety, panic disorder, or major depression. The effect is nearly instantaneous (within the same day), suggesting that anticipation over future consumption directly influences instantaneous utility, e.g., Caplin and Leahy (2001). Moreover, the effect of such anticipation is path dependent, being strongest during low volatility regimes, and immediately following low returns.
This paper presents the Economic Security Index (ESI), a new, more comprehensive measure of economic insecurity. By combining data from multiple surveys, we create an integrated measure of volatility in available household resources, accounting for fluctuations in income and out-of-pocket medical expenses, as well as financial wealth sufficient to buffer against these shocks. We find that insecurity has risen steadily since the mid-1980s for virtually all subgroups of Americans, albeit with cyclical ups and downs. We also find, however, that there is substantial disparity in the degree to which different groups are exposed to economic risk. As the ESI derives from a data-independent conceptual foundation, it can be measured using different data sources. We find that the degree and disparity by which insecurity has risen is robust across these sources.
В статье производится анализ агрегированной производственной функции, вводится аппарат, позволяющий различать движение вдоль такой функции от ее сдвигов. На основании сделанных в статье предположений делаются выводы о характере технического прогресса и технологических изменений. Существенное внимание уделяется вариантам применения концепции агрегированной производственной функции.
This is a study of factors responsible for the wide cross-sectional differences in the past and current rates of use of hybrid seed corn in the United States. Logistic growth functions are fitted to the data by states and crop reporting districts, reducing differences among areas to differences in estimates of the three parameters of the logistic: origins, slopes, and ceilings. The lag in the development of adaptable hybrids for particular areas and the lag in the entry of seed producers into these areas (differences in origins) are explained on the basis of varying profitability of entry, "profitability" being a function of market density, and innovation and marketing cost. Differences in the long-run equilibrium use of hybrid corn (ceilings) and in the rates of approach to that equilibrium (slopes) are explained, at least in part, by differences in the profitability of the shift from open pollinated to hybrid varieties in different parts of the country. The results are summarized and the conclusion is drawn that the process of innovation, the process of adapting and distributing a particular invention to different markets and the rate at which it is accepted by entrepreneurs are amenable to economic analysis.
This paper documents the abnormally slow recovery in the labor market during the Great Recession, and analyzes how mortgage modification policies contributed to delayed recovery. By making modifications means-tested by reducing mortgage payments based on a borrower's current income, these programs change the incentive for households to relocate from a relatively poor labor market to a better labor market. We find that modifications raise the unemployment rate by about 0.5 percentage points, and reduce output by about 1 percent, reflecting both lower employment and lower productivity, which is the result of individuals losing skills as unemployment duration is longer.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
We find that institutional ownership in publicly traded companies is associated with more innovation (measured by cite-weighted patents). To explore the mechanism through which this link arises, we build a model that nests the lazy-manager hypothesis with career-concerns, where institutional owners increase managerial incentives to innovate by reducing the career risk of risky projects. The data supports the career concerns model. First, whereas the lazy manager hypothesis predicts a substitution effect between institutional ownership and product market competition (and managerial entrenchment generally), the career-concern model allows for complementarity. Empirically, we reject substitution effects. Second, CEOs are less likely to be fired in the face of profit downturns when institutional ownership is higher. Finally, using instrumental variables, policy changes and disaggregating by type of owner we find that the effect of institutions on innovation does not appear to be due to endogenous selection.
We investigate the consumption consequences of the 2006–9 housing collapse using the highly unequal geographic distribution
of wealth losses across the United States. We estimate a large elasticity of consumption with respect to housing net worth
of 0.6 to 0.8, which soundly rejects the hypothesis of full consumption risk-sharing. The average marginal propensity to consume
(MPC) out of housing wealth is 5–7 cents with substantial heterogeneity across ZIP codes. ZIP codes with poorer and more levered
households have a significantly higher MPC out of housing wealth. In line with the MPC result, ZIP codes experiencing larger
wealth losses, particularly those with poorer and more levered households, experience a larger reduction in credit limits,
refinancing likelihood, and credit scores. Our findings highlight the role of debt and the geographic distribution of wealth
shocks in explaining the large and unequal decline in consumption from 2006 to 2009. JEL Codes: E21, E32, E44, E60.
What is the impact of real estate prices on corporate investment? In the presence of financing frictions, firms use pledgeable assets as collateral to finance new projects. Through this collateral channel, shocks to the value of real estate can have a large impact on aggregate investment. Over the 1993-2007 period, the representative U.S. corporation borrows 4 cents of new debt, and invests 6 cents out of each additional dollar of collateral. To compute this sensitivity, we use local variations in real estate prices as shocks to the collateral value of firms that own real estate. We address the endogeneity of local real estate prices using the interaction of interest rates and local constraints on land supply as an instrument. We address the endogeneity of the decision to own land (1) by controlling for observable determinants of ownership and (2) by looking at the investment behavior of firms before and after they acquire land. The sensitivity of investment to collateral value is stronger the more likely a firm is to be credit constrained.
This paper uses the theories of price discrimination and optimal taxation to investigate effects of underwater mortgages on foreclosures and the incentives to earn income, and the degree to which those effects are shaped by public policy. I find that the federal government’s means-tested mortgage modification plan creates a massive implicit tax that may be significant even from a macroeconomic perspective. An alternative of modifying mortgages to maximize lender collections would also feature means tests, but with less effort distortion and perhaps fewer foreclosures. The paper also considers the consequences of a public policy that left mortgage modification to lenders, subject to a requirement that modification would not be conditioned on borrower income.
This paper takes a skeptical look at a leading argument about what is causing the foreclosure crisis and what should be done to stop it. We use an economic model to focus on two key decisions: the borrower's choice to default on a mortgage and the lender's subsequent choice whether to renegotiate or modify the loan. The theoretical model and econometric analysis illustrate that unaffordable loans, defined as those with high mortgage payments relative to income at origination, are unlikely to be the main reason that borrowers decide to default. In addition, this paper provides theoretical results and empirical evidence supporting the hypothesis that the efficiency of foreclosure for investors is a more plausible explanation for the low number of modifications to date than contract frictions related to securitization agreements between servicers and investors. While investors might be foreclosing when it would be socially efficient to modify, there is little evidence to suggest they are acting against their own interests when they do so. An important implication of our analysis is that policies designed to reduce foreclosures should focus on ameliorating the immediate effects of job loss and other adverse life events rather than modifying loans to make them more affordable on a long-term basis.