Productivity slowdown and misallocation in the post-recession: What prevents recovery?

Umut Kilinc

The Journal of Technology Transfer, 2018, vol. 43, issue 6, No 6, 1542-1570

Abstract: Abstract This study explores the effects of the 2008 global economic crisis on the labor allocation and productivity in Luxembourg. The analysis is based on firm-level data from manufacturing and non-financial service sectors and finds a dramatic productivity slowdown after 2008. The study reveals that the cleansing effect of recession did not function effectively which would otherwise improve the efficiency in the labor allocation and counterbalance the productivity slowdown. The firm entry and job creation rates are lower in the post-crisis period, but the job destruction is not significantly altered by the crisis. The findings call attention for the strict employment protection legislation that possibly plays a role in preventing reallocation towards more efficient establishments. Relaxing the employment protection legislation simultaneously with facilitating the entry and growth of young firms is expected to promote creative destruction, improve allocative efficiency and speed up the post-crisis recovery.

Keywords: Labor productivity; Allocative efficiency; Recession; Job creation and destruction; Firm size and age (search for similar items in EconPapers)
JEL-codes: D20 D61 J24 L11 L16 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s10961-016-9541-0

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