Working Paper: NBER ID: w28802
Authors: John C. Haltiwanger; Henry R. Hyatt; Erika McEntarfer; Matthew Staiger
Abstract: Do recessions speed up or impede productivity-enhancing reallocation? To investigate this question, we use U.S. linked employer-employee data to examine how worker flows contribute to productivity growth over the business cycle. We find that in expansions high-productivity firms grow faster primarily by hiring workers away from lower-productivity firms. The rate at which job-to-job flows move workers up the productivity ladder is highly procyclical. Productivity growth slows during recessions when this job ladder collapses. In contrast, flows into nonemployment from low productivity firms disproportionately increase in recessions, which leads to an increase in productivity growth. We thus find evidence of both sullying and cleansing effects of recessions, but the timing of these effects differs. The cleansing effect dominates early in downturns but the sullying effect lingers well into the economic recovery.
Keywords: worker flows; productivity; business cycles; cleansing effects; sullying effects
JEL Codes: E24; E32; J24; J63; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Economic growth (O49) | Worker mobility towards higher productivity (J62) |
| Job-to-job flows (J62) | Productivity growth (O49) |
| Economic conditions (E66) | Job mobility (J62) |
| Recessions (E32) | Productivity growth slows (O49) |
| Job ladder collapses (J62) | Hindered worker mobility (J61) |
| Less productive firms (D22) | Increased hiring from nonemployment (J23) |
| Cleansing effect (Q52) | Early downturns (E32) |
| Sullying effect (C92) | Lingers into recovery (C41) |