Does Economic Insecurity Affect Employee Innovation?

Do household wealth shocks affect employee output? We examine this question through the lens of technological innovation, by comparing employees that worked at the same firm and lived in the same metropolitan area, but experienced different housing wealth declines during the 2008 crisis. Following a housing wealth shock, employees are less likely to successfully pursue innovative projects, particularly ones that are high impact, exploratory, or complex in nature. The effects are more pronounced among employees with fewer outside labor market opportunities, and among employees who had little equity in their house before the crisis. In contrast, run-ups in housing prices before the crisis did not affect employee innovation. Overall, the findings are consistent with the hypothesis that negative housing wealth shocks lead to decreased innovative output due to heightened concern among employees about the possibility of mortgage default. The results also highlight a “bottom-up” view of innovation, wherein lower-level employees are important determinants of firm-level innovation.