Reallocation in the Great Recession: Cleansing or Not?

By L. Foster, Cheryl Grim, John C. Haltiwanger. Journal of Labor Economics, 2016

370 citations recorded by the source corpus.

The high pace of reallocation across producers is pervasive in the US economy. Evidence shows that 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 that 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 that the intensity of reallocation fell rather than rose and that the reallocation that did occur was less productivity enhancing than in prior recessions.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/28885eb504a342325e1f805fbeaf580d76cf243e

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Citations in the corpus

Changing Business Dynamism and Productivity: Shocks vs. Responsiveness (2018, methodology): “See, for example, Foster, Haltiwanger and Krizan (2006), Jarmin, Klimek and Miranda (2009) and Foster et al. (2015).”
The walking dead? Zombie firms and productivity performance in OECD countries (2018, background): “However, evidence for the United States suggests that, compared to previous historical episodes, the cleansing effect was much weaker during the Great Recession (Foster et al., 2016).”
The US Labor Market during the Beginning of the Pandemic Recession (2020, background): “The large exit of low-wage workers from the labor market has 34See Foster et al. (2016) on productivity selection and exit in recent recessions. resulted in average wage per worker rising by five percent in the weeks following the start of the recession.”
The Multiprod project: A comprehensive overview (2017, methodology): “Note that, in line with the empirical findings of Foster et al. (2008), TFPQ is more dispersed than TFPR, and has fatter left tails.”
Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America (2018, neutral): “[28] Foster, Lucia, Cheryl Grim, and John Haltiwanger (2014).”
Labour Reallocation and Productivity Dynamics: Financial Causes, Real Consequences (2016, neutral): “A large literature examines the relationship between reallocations and the business cycle to tease out causality (see for instance Baily et al (2001) or Foster et al (2014)).”
Breaking the Shackles: Zombie Firms, Weak Banks and Depressed Restructuring in Europe (2017, positive): “To test this hypothesis, we employ the same framework as Adalet McGowan et al. (2018), augmenting a canonical firm dynamics model (Foster et al. 2016, Decker et al. 2016) which predicts that conditional on initial size, more productive firms should have higher growth potential and thus grow more…”
Should We Reject the Natural Rate Hypothesis (2018, background): “Looking at past U.S. recessions, Foster et al. (2014) estimate that the effect has been generally positive and surprisingly large.”
Unmasking the Impact of COVID-19 on Businesses : Firm Level Evidence from across the World (2020, background): “All firms are vulnerable to persistently low demand, but in large systemic crises good and bad firms may be weeded out alike (Hallward-Driemeier and Rijkers, 2013; Foster et al., 2016).”