Abstract
This article examines the portfolio choice of workers that face differential exposure to technology-driven displacement. Using an exogenous policy shock that incentivized the firms to invest in technology, we show that the routine workers respond to heightened displacement risk by reducing the share of liquid wealth invested in equities. This effect is independent of the well-documented wealth effect and is weaker in presence of self or government-sponsored insurance. We show that the conservative portfolio choice of routine households lowers their return on liquid wealth and our simulations show that, ceteris paribus, the reported changes in portfolio composition can lead to a return-on-wealth differential of 30% over a 10-year period.
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