Reallocation in the Great Recession: Cleansing or Not?

Reallocation in the Great Recession: Cleansing or Not?

The high pace of reallocation across producers is pervasive in the U.S. economy. Evidence shows this high pace of reallocation is closely linked to productivity. While these patterns hold on average, the extent to which the reallocation dynamics in recessions are “cleansing” is an open question. We find downturns prior to the Great Recession are periods of accelerated reallocation even more productivity enhancing than reallocation in normal times. In the Great Recession, we find the intensity of reallocation fell rather than rose and the reallocation that did occur was less productivity enhancing than in prior recessions.

Lucia Foster, Cheryl Grim, John Haltiwanger

Journal of Labor Economics

December 6, 2015

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