COVID-19, productivity and reallocation: Timely evidence from three OECD countries
The longer run consequences of the pandemic will partly hinge on its impact on high
productivity firms, and the ongoing process of labour reallocation from low to high
productivity firms. While Schumpeter (1939) proposed that recessions can accelerate
this process, the 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. Using novel, near-real-time data for Australia, New
Zealand and the United Kingdom, this paper shows that while labour turnover fell in
response to the pandemic, job reallocation remained connected to firm productivity
– that is, high productivity firms were more likely to expand and low productivity
firms were more likely to contract. The pandemic coincided with a temporary strengthening
of the reallocation-productivity link in Australia – but a weakening in New Zealand
– which appears related to the design of job retention schemes. Finally, firms that
intensively used Apps to manage their business were more resilient, even after controlling
for productivity. Thus, while policy partly suppressed creative destruction, the nature
of the shock – i.e. one where being online and able to operate remotely were key –
favoured high productivity and tech-savvy firms, resulting in a reallocation of labour
to such firms. The use of timely, novel data to investigate the allocative effects
of the pandemic marks a significant advance, given that the seminal paper on productivity-enhancing
reallocation during the Great Recession arrived some six years after Lehman Brothers
collapsed.
Published on July 22, 2021
In series:OECD Economics Department Working Papersview more titles