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Were jobs saved at the cost of productivity in the Covid-19 crisis ?

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  • Jaanika Merikyll
  • Alari Paulus

Abstract

Economic recessions can boost the productivity-enhancing reallocation of jobs, yet the Covid-19 crisis has provided limited and mixed evidence of that. The paper studies the link between productivity and reallocation and investigates the role of job retention schemes in it, using a rich administrative dataset for Estonia that covers the whole population of firms from 2004 to 2020. We find persistent evidence for the reallocation of jobs towards more productive sectors and firms. However, the within-sector reallocation was surprisingly unresponsive to productivity in the Covid-19 crisis, in sharp contrast to the experience in the previous major crisis, the Great Recession. We show that a generous job retention scheme supressed the acceleration of within-industry reallocation towards more productive firms, which had negative consequences for aggregate productivity during Covid-19. These estimates appear sufficiently large to imply that there are negative overall welfare effects that offset the positive employment effect.

Suggested Citation

  • Jaanika Merikyll & Alari Paulus, 2022. "Were jobs saved at the cost of productivity in the Covid-19 crisis ?," Bank of Estonia Working Papers wp2022-5, Bank of Estonia, revised 29 Jun 2022.
    • Handle: RePEc:eea:boewps:wp2022-5
    DOI: 10.23656/25045520/052022/0195
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    Cited by:

    1. Meriküll, Jaanika & Paulus, Alari, 2024. "Were jobs saved at the cost of productivity in the COVID-19 crisis?," European Economic Review, Elsevier, vol. 161(C).
    2. Meriküll, Jaanika & Paulus, Alari, 2023. "The impact of the Covid-19 job retention support on employment," Economics Letters, Elsevier, vol. 222(C).

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    More about this item

    Keywords

    job reallocation; productivity; Covid-19; cleansing effect; firm exit and entry; job retention scheme;
    All these keywords.

    JEL classification:

    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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