COVID-19, productivity and reallocation: Hibernation or zombification?

The consequences of the pandemic for potential output will partly hinge on its impact on productivity-enhancing reallocation – the rate at which labour is reallocated from low to high productivity firms. While Schumpeter proposed that recessions can accelerate this “cleansing” process, downturns can also distort reallocation dynamics if financial constraints result in the premature shakeout of productive but financially fragile firms. The pandemic could provide a further twist on the cleansing hypothesis if job retention schemes distorted the reallocation process by delaying the restructuring of unproductive firms that would have otherwise contracted, thereby risking “zombification”. But timely evidence on this issue is scarce. This seminar provides an overview of two recent OECD studies, which exploit novel real-time data sources to shed light on the impact of the pandemic on productivity-enhancing reallocation, including the role of job retention schemes in this process.

Dan Andrews is Head of the Structural Policy Analysis Division at the OECD, where he leads teams to analyze the drivers of productivity and employment growth, with an emphasis on the role of digital technologies, structural reform and recessions. From 2018-20, Dan was Chief Adviser on Structural Reform and Macroeconomic Policy at the Australian Treasury, where he led an effort to integrate large-scale microdata sources into the policy process, served as Co-Chair of the OECD Global Forum on Productivity and represented Australia on the OECD Economic Policy Committee. His research exploits micro-data to assess the causes of the global productivity slowdown and the impact of structural reforms on growth. Prior to 2018, he was Deputy Head of Structural Policy Analysis Division and leader of the Productivity Workstream in the OECD Economics Department. Dan was a central banker at the Reserve Bank of Australia for a decade and undertook graduate studies at Harvard University, before joining the OECD in 2009.

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