ABSTRACT
This paper examines whether the economic crisis induced by the COVID-19 pandemic exhibits a Schumpeterian "cleansing” of less productive firms. Using firm-level data collected for 34 economies up to 18 months into the crisis, the study finds that less productive firms have a higher probability of permanently closing during the crisis, suggesting that the process of cleansing out unproductive activities is occurring. The paper also uncovers strong and negative relationships of firm exit with digital presence and with innovation. These relationships are driven by small firms. The study further finds that a burdensome business environment increases the probability of firm exit, also driven by small firms, and that a negative relationship exists between firm exit and age. Finally, evidence shows that the cleansing process is disrupted in countries which have introduced policies imposing a moratorium on insolvency procedures.Plain English SummaryThe purpose of this analysis is to investigate whether firms that are more productive are less likely to cease operation during the economic crisis induced by the COVID-19 pandemic. To verify this hypothesis, the paper uses data on firm characteristics, productivity, and status of operation from 34 countries. The data on firm characteristics and productivity were collected before the crisis, while data on the operating status were collected within 18 months since the appearance of the coronavirus. The results of the paper show that indeed, more productive firms are more likely to survive the crisis. In addition, businesses that have been in operation for longer, or ones which have a website or have introduced a new product in the years before the crisis are more likely to continue existing. The positive role of digitalization and innovation is true especially for small firms. Conversely, those businesses which have to spend more time in compliance with government regulations are less likely to survive. The policy implications show the importance of digitalization and innovation, the vulnerabilities of small firms, and the significance of good governance.
ABSTRACT
This paper investigates the impact of recent recessions on the origins of productivity growth. We show how business cycles affect productivity growth, with particular attention for the impact of job reallocation and labor hoarding. We find evidence that recessions induce productivity enhancing job reallocation in manufacturing but not in services industries and show that labor hoarding mitigates this cleansing effect of recessions. Furthermore, we show how entry and exit of firms and industry dynamics shape the evolution of aggregate productivity.Plain English SummaryDuring recessions, governments support firms via temporary unemployment programs to save jobs. A side effect is that job reallocation and exit of low-productive firms can be distorted, while such cleansing effects typically spur productivity growth. This paper investigates how recessions affect productivity growth, with particular attention for the impact of job reallocation and labor hoarding. We find evidence that recessions induce productivity enhancing job reallocation in manufacturing but not in services industries and show that labor hoarding mitigates this cleansing effect of recessions. Furthermore, we show how entry and exit of firms and industry dynamics shape the evolution of aggregate productivity. As many developed economies struggle with a slowdown in productivity growth, it is important that policy makers understand the impact of recessions on the micro origins of productivity growth and are aware of how temporary policies during recessions could affect long-term productivity growth.
ABSTRACT
In the wake of the COVID-19 pandemic, more firms than ever before have enabled their employees to work from home. Based on a representative firm survey in Germany, surveying 2.000 firms per month throughout the course of the pandemic (October 2020 until June 2022), this paper provides suggestive evidence concerning the effects of working from home (WFH) at different points in time during the pandemic and discusses implications for the future of work. We assess the potential of WFH in Germany to be 25–30% of private-sector employees. On the firm side, we find that higher WFH use is positively related to business success during the crisis, with increased employee productivity and employees working more hours when remote being possible mechanisms. Larger firms in particular are open towards expanding their WFH offerings in the future. During the pandemic, firms have experienced that WFH has worked well in many respects (e.g., productivity of employees, quality of work performed) and, for the future, they are willing to facilitate WFH in order to give their employees more flexibility, and to be considered an attractive employer. However, working on site brings advantages (e.g., communication, cooperation and onboarding of new employees) firms will not want to sacrifice, pointing towards a hybrid model of work.