The COVID-19 shock and productivity-enhancing reallocation in Australia: Real-time
evidence from Single Touch Payroll
The consequences of the pandemic for potential output will partly hinge on its impact
on high productivity firms, and more generally the ongoing process of productivity-enhancing
reallocation – the rate at which scarce resources are reallocated from less productive
to more productive firms. While Schumpeter (1939) originally proposed that recessions
can accelerate this process, the more ‘random’ nature of the COVID-19 shock coupled
with a policy response that prioritised preservation (over reallocation) raises questions
about whether job reallocation remained productivity-enhancing over the course of
the pandemic. Despite these headwinds, our analysis based on novel high-frequency
employment data for Australia shows that job reallocation (and firm exit) remained
solidly connected to firm productivity over 2020. The greater resilience of high productivity
firms is significant, given that an indiscriminate shakeout of such firms – and the
associated destruction of firm-specific intangible capital – would have imparted significant
scarring effects. As it turns out, the temporary nature of Australia’s job retention
scheme (JobKeeper) made an important (and surprising) positive contribution to this
process, with material consequences for aggregate productivity. But the scheme appears
to have become more distortive over time, justifying its timely withdraw – on productivity
grounds at least.
Published on July 22, 2021
In series:OECD Economics Department Working Papersview more titles