Economics & Growth | Fiscal Policy
Has Government Support Eroded Productivity Growth?
- By Sam van de Schootbrugge
- 3 min read
During recessions, labour turnover increases as struggling firms attempt to reduce costs. In theory, these workers get reallocated to more productive firms that survive because they have more adaptable business models. This process of creative destruction, where less productive firms contract/fail and more productive ones expand, leads to a more efficient labour allocation and increased productivity.
During the pandemic, however, governments prioritised preservation over reallocation, introducing job-retention schemes that saved jobs and firms indiscriminately. And so, a new OECD working paper examines whether the drop in creative destruction has reduced worker reallocation, thereby restraining aggregate productivity growth.
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