Reallocation in the Great Recession: Cleansing or Not?

Lucia Foster; Cheryl Grim; John Haltiwanger

doi:10.3386/w20427

Reallocation in the Great Recession: Cleansing or Not?

Lucia Foster, Cheryl Grim & John Haltiwanger

Working Paper 20427

DOI 10.3386/w20427

Issue Date August 2014

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

Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. We thank the Kauffman Foundation for financial support and Robert Kulick for his superb research assistance. We thank David Card, Erik Hurst, Ron Jarmin, Alex Mas, Javier Miranda, two anonymous referees and participants at the COMP_NET conference in Dublin and the NBER Conference on Labor Markets in the Aftermath of the Great Recession for their helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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Reallocation in the Great Recession: Cleansing or Not?

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