Working Paper: NBER ID: w20427
Authors: Lucia Foster; Cheryl Grim; John Haltiwanger
Abstract: The high pace of reallocation across producers is pervasive in the U.S. economy. Evidence shows this high pace of reallocation is closely linked to productivity. While these patterns hold on average, the extent to which the reallocation dynamics in recessions are "cleansing" is an open question. We find downturns prior to the Great Recession are periods of accelerated reallocation even more productivity enhancing than reallocation in normal times. In the Great Recession, we find the intensity of reallocation fell rather than rose and the reallocation that did occur was less productivity enhancing than in prior recessions.
Keywords: Reallocation; Great Recession; Productivity; Cleansing Hypothesis
JEL Codes: E24; E32; J63; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Low productivity establishments (D20) | Exit the market (D41) |
| High productivity establishments (D20) | Grow (O00) |
| The gap in exit rates between high and low productivity establishments decreases as unemployment rises (J69) | The expected cleansing effect of recessions is attenuated in the Great Recession (E65) |
| Low productivity establishments (D20) | Productivity-enhancing reallocation (F16) |
| Patterns of job creation and destruction during the Great Recession (J63) | Productivity-enhancing reallocation (F16) |