The COVID-19 shock and productivity-enhancing reallocation in Australia: Real-time evidence from Single Touch Payroll

Dan Andrews, Jonathan Hambur and Elif Bahar

No 1677, OECD Economics Department Working Papers from OECD Publishing

Abstract: 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.

Keywords: COVID-19; productivity; reallocation; recessions (search for similar items in EconPapers)
JEL-codes: E24 E32 J63 O4 (search for similar items in EconPapers)
Date: 2021-07-22
New Economics Papers: this item is included in nep-bec, nep-eff, nep-lab and nep-mac
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Citations: View citations in EconPapers (7)

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