Unintended Benefits of Employment Protection Laws : Households' Stock Market Participation

Exploiting the staggered adoptions of US state-level employment protection laws, we provide novel empirical evidence that adoptions of laws increase the level of stock market participation both on the extensive margin and on the intensive margin. These effects are stronger for young, low-income, low-wealth, and less educated households. We observe the opposite behaviors when the law is reversed. Overall, our findings imply the significance of employment protection laws in inducing households to take more financial risk, thereby improving wealth accumulation. This is a new channel through which employment protection laws benefit households and the economy