Lilas Demmou, Guido Franco, 05 October 2021

Intangible assets are at the heart of firms’ competitiveness, but financing them is complex for many firms. This column examines the extent to which financing barriers affect productivity outcomes in intangible-intensive sectors, using sector- and firm-level data. The authors demonstrate the existence of a ‘financing gap’ which depresses aggregate productivity growth and resilience, and propose a set of policy options to make each source of external finance – government support, equity financing, and bank credit – more supportive of intangible investment.

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.

Minho Kim, Munseob Lee, Yongseok Shin, 25 October 2021

Industrial policy has divided economists for decades. This column evaluates Korean government's policy of promoting heavy and chemical industries in the 1970s, using plant-level output and productivity data. It shows that output and input use of targeted industries/regions grew significantly faster than those of non-targeted ones. However, total factor productivity did not increase because the misallocation of resources across plants within targeted industries/regions got significantly worse. 

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. 

Vincent Aussilloux, Jean-Charles Bricongne, Samuel Delpeuch, Margarita Lopez Forero, 21 September 2021

French multinational enterprises have been expanding their activity abroad, including for profit-shifting purposes. These tax planning activities may alter the measurement and our understanding of their real activity. This column uses French micro-data from 1997 to 2015 to show that firm-measured productivity declines in the years following multinationals’ establishment of tax havens. Had these new presences in tax havens not been established, the annual growth of French aggregate labour productivity would have been 0.06% higher, which is tantamount to 9.7% of the observed annual aggregate labour productivity growth. 

Luke Bartholomew, Paul Diggle, 21 September 2021

As the global economy recovers from the immediate economic impact of the Covid crisis, attention is increasingly turning to the long-run impact of the shock on productivity. This column identifies several channels – including labour market hysteresis, impaired skill acquisition, belief scarring, an increase in zombie companies, and policy errors – through which the lasting harm will outweigh any positive supply shocks caused by the pandemic. The authors estimate long-term output losses in the order of 3% of global GDP. Scarring will be greater in some economies than others, pointing to the importance of policy in mediating and offsetting these channels. 

Ruo Shangguan, Jed DeVaro, Hideo Owan, 18 September 2021

It has been argued that when workers are already working long weeks, adding more hours can reduce productivity. This column tests this argument using evidence from Japan. The authors find that long working hours of key team members harm team productivity. In contrast, shorter hours cause the opposite effect, perhaps because workers recover from fatigue and arrive for work with increased energy and focus.

Alejandro Fernández-Cerezo, Beatriz González, Mario Izquierdo, Enrique Moral-Benito, 26 August 2021

The Covid-19 pandemic and the imposed social distancing restrictions represented an unprecedented shock for the world economy and caused a marked increase in uncertainty. Based on a new firm-level survey matched with balance-sheet information, this column presents new evidence from Spain on the asymmetric impact of the pandemic shock. The impact of the Covid-19 shock was larger in the case of small and less productive firms within each sector and region. However, the unexpected announcement of the effectiveness of the Pfizer vaccine significantly improved the prospects of faster recovery under different sets of measures.

Tommaso Bighelli, Tibor Lalinsky, Filippo di Mauro, 19 August 2021

Government support in response to the Covid-19 pandemic has raised concerns about the misallocation of public funds and the creation of ‘zombie’ firms. This column uses firm-level data from CompNet for four EU countries to show that Covid-19 support was distributed rather efficiently. Government subsidies were distributed towards medium productive firms, and only marginally towards the undeserving ‘zombies’. However, the negative impact of the pandemic on productivity growth was large and resource reallocation sluggish, which calls for a removal of the blanket as soon as the situation allows. 

David Baqaee, Kunal Sangani, 14 August 2021

There are multiple mechanisms that drive aggregate increasing returns to scale. This column argues that the higher aggregate efficiency in larger markets may principally arise from a ‘Darwinian effect’ that causes high-markup firms to expand relative to low-markup firms as market size increases. This effect, which does not depend on the shape of the demand curve, means that additional firm entry can be valuable because it helps mitigate cross-sectional misallocation. Policymakers can harness this effect by incentivising entry, for example with a subsidy on entry costs. 

Elliott Ash, 03 July 2021

Faced with extreme old age and even dementia among its judges, some US states have imposed a mandatory retirement age. But this policy may remove experienced judges who are still productive in their jobs. This column examines the overall effect of mandatory retirement on court productivity in US states during 1947–1994 and finds that court productivity increased by more than 25% after the introduction of mandatory retirement. There may even be a team effect of ageing whereby the presence of older judges slows down the pace of work in the court.

Marek Ignaszak, Petr Sedláček, 02 July 2021

To gauge the efficacy of policies aimed at spurring growth, we must first fully understand the sources of aggregate growth. This column argues that understanding the drivers of economic growth requires paying attention not only to productivity and R&D dynamics at the firm level, but also to changes in demand for firms’ products. The authors provide a new perspective on commonly used supply-side pro-growth policies and open the door to analysing demand-side policies such as public procurement or product market regulation, which have been present in the policy debate but have largely escaped academic circles.

Nicholas Crafts, 25 June 2021

John Maynard Keynes famously predicted that no one would need to work for more than three hours a day by 2030. How did he get it so wrong? Nick Crafts tells Tim Phillips that, in one way, Keynes has underestimated the change in our work-life balance.

Sebastian Siegloch, Nils Wehrhöfer, Tobias Etzel, 04 June 2021

Increasing regional inequality has become a major concern for policymakers both in the US and Europe. This column investigates the effects of a large place-based investment subsidy targeted at manufacturing firms in East Germany. It shows that a decrease in the subsidy rate leads to a decrease in manufacturing employment, highlighting spillovers to untreated sectors in treated counties and untreated counties connected via trade and local taxes. It also finds that the place-based policy is at least as efficient as cash transfers for the unemployed but is more effective in curbing regional inequality overall.

Ian Goldin, Pantelis Koutroumpis, François Lafond, Julian Winkler, 31 May 2021

Labour productivity is a key determinant in improving living standards. But in recent years, productivity has stagnated, if not declined, in many countries around the world. This column re-evaluates the various reasons as to why this might be, applying three criteria to the existing explanations for the slowdown. It finds that the slowdown in productivity can be attributed to numerous factors, ranging from mismeasurement to changes in trade patterns.

Fozan Fareed, Bastiaan Overvest, 20 May 2021

The COVID-19 crisis may affect future productivity through its impact on business dynamics. This column argues that business dynamics – in particular business entries, exits, and bankruptcies – are slowing down, which can have adverse effects on long-term productivity. Over the course of 2020, fewer new businesses were established than in any ‘normal’ year and fewer closed down than during the Global Crisis in 2009. Most new entrants are self-employed and online businesses, especially in the wholesale and retail trade sector.

Morris Davis, Andra Ghent, Jesse Gregory, 18 April 2021

The COVID-19 pandemic has prompted a radical shift in how much people work from home. This column argues that, through learning and technology adoption effects, this enforced shift has boosted the productivity of working from home, which will lead to higher lifetime incomes for the working population. While these productivity gains would likely have happened eventually, the pandemic accelerated this process.

Gaurav Khanna, Wenquan Liang, Ahmed Mushfiq Mobarak, Ran Song, 08 April 2021

Why do workers remain in low-productivity areas when they could experience wage gains elsewhere? While the literature has proposed a few explanations, including the high cost and risky nature of migration, this column uses the case of China to examine instead the role that pollution plays. It finds that severe pollution can induce workers to relocate from productive to unproductive regions, suggesting that pollution control, coupled with policies facilitating migration, has the potential to bring about extra economic gains in developing countries.

Francesca Carta, Francesco D'Amuri, Till von Wachter, 16 March 2021

Population ageing reduces labour supply and burdens pension systems. At the same time, delaying the statutory retirement age may have an impact on firms’ productivity and risks crowding out younger workers. This column exploits an unexpected pension reform in Italy in 2012 which sharply increased the full retirement age for workers aged 55 or above to show that such concerns may not be warranted. A rise in employment of older workers led to an increase in value added while holding labour costs constant. Employment in other age classes also increased. This suggests older workers are valuable to employers and that pension reforms postponing retirement can remove a constraint rather than placing a burden on firms.

Masayuki Morikawa, 12 March 2021

Working from home has become much more prevalent across advanced economies during the Covid-19 pandemic. This column uses survey data from Japan to explore how widely working from home has been adopted across industries and how productive employees are at home. It finds that the overall contribution of working from home to labour input is surprisingly small. Even where firms adopted the practice, many employees did not exploit it; and even those who did work from home did not necessarily do so throughout the week. The firm survey responses suggest that across industries, the average productivity of employees when working from home relative to at the workplace is 68.3%, which is similar to the findings from an employee survey. The results suggest that there is room for improvement to make working from home more feasible.

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