Dan Andrews, Elif Bahar, Jonathan Hambur, 30 September 2021

Job retention schemes during the pandemic prioritised preservation over reallocation, but evidence on their allocative and productivity consequences is scarce. Using tax data for Australia, this column shows that job reallocation and firm exit remained connected to firm productivity over the course of the pandemic. Australia’s job retention scheme, JobKeeper, initially shielded productive and financially fragile firms, contributing positively to aggregate productivity. But as the economy recovered, the scheme grew more distortive, justifying its timely withdrawal – on productivity grounds at least.

Dan Andrews, Andrew Charlton, Angus Moore, 22 September 2021

Covid-19 has been characterised as a reallocation shock, but the debate has so far lacked a clear link with productivity. This column uses real-time data to show that job reallocation remained connected to firm productivity even while labour turnover fell in response to the pandemic. High (low) productivity firms were more likely to expand (contract), although the strength of this effect varied across countries, consistent with differences in job retention schemes. While policy partly hindered creative destruction, the nature of the pandemic shock favoured high-productivity and tech-savvy firms, resulting in a reallocation of labour to these firms. 

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