Almost Famous: The Short- and Long-Term Effects of Wealth Shocks on Career Decisions

Using a novel data set of career histories in the film industry, we study the effect of housing wealth shocks on the quality of jobs that individuals pursue. Homeowners facing greater local house price declines reduce their participation in high-quality projects, such as big-budget films and productions with award-winning talent, while increasing their involvement in low-quality films. Importantly, differences in local labor demand do not explain these results. Consistent with individuals relying on home equity extraction during job searches, these negative shocks have a greater impact on lower-equity and less-wealthy homeowners. These short-term wealth shocks also affect long-term career trajectories. ∗We are grateful to Briana Chang, Jonathan Cohn, Murray Frank, Rawley Heimer, Jeanne Lafortune, Borja Larrain, Adrien Matray, Jordan Nickerson, Richard Thakor, Clemens Sialm, and Tracy Wang and seminar participants at the EALE/SOLE/AASLE Conference, the ECWFC meeting at the WFA, Finance in the Cloud I, the European meeting of the Labor and Finance Group, Household Finance CEPR Seminar Series, the Minnesota Corporate Finance Conference, the UAB Personal Finance Conference, the UT Dallas Finance Conference, PUC Chile, Rice University, Universidad Adolfo Ibanez, University of Houston, and University of Minnesota for their helpful comments. Christos Kamaras and Alexandre Reggi Pecora provided excellent research assistance. †University of Minnesota. E-mail: cespe013@umn.edu ‡University of Houston. E-mail: zliu@bauer.uh. edu. §Pontificia Universidad Catolica de Chile. E-mail:parra.c. carlos.r@gmail.com Each year, millions of individuals search for new jobs. They often finance their job search with personal wealth and by public unemployment insurance (Algan et al., 2003). In job search models, personal wealth allows individuals to be more selective in their job search and to wait for better job opportunities. Conversely, negative wealth shocks, like the 2008 recession, could push individuals to be less selective and more willing to accept jobs that do not fit their career objectives (Shimer and Werning, 2007). Examining the impact of wealth shocks on job search choices is important since these decisions can have aggregate effects on economic growth (e.g., Murphy et al., 1991). Recent papers explore the effect of housing wealth shocks on labor supply, on-the-job productivity, and labor mobility (Bernstein and Struyven, 2017; Disney and Gathergood, 2018; Brown and Matsa, 2020; Bernstein et al., 2020; Bernstein, 2020; Gopalan et al., 2020). Yet little evidence has been uncovered on how wealth shocks influence job search outcomes or long-term career trajectories. This dearth of evidence can be explained by the fact that, in most settings, workers are not continuously searching for jobs, and microdata on job quality are scarce. The aim of this paper is to study the effect of wealth shocks on the type and quality of jobs that individuals pursue, their long-term career effects, and the mechanisms by which wealth shocks affect job search outcomes. Empirically estimating the effect of wealth shocks on an individual’s career choices is complicated by a few important issues. First, finding detailed information on employment choices, especially data covering job quality and longterm horizons, is difficult. Second, a comparison between financial health and career choices could be biased by unobserved variables that can affect individuals’ wealth (e.g., Himmelstein et al., 2005; Gross and Notowidigdo, 2011; Ramsey et al., 2013). To hone in on the effect of wealth shocks on job search outcomes and long-term career trajectories, while addressing the aforementioned issues, we turn to the labor market for workers in the film industry. This unique setting offers a promising laboratory for several reasons. First, each film is a distinct economic project with clearly identifiable and measurable com-