Skip to main content

Advertisement

SpringerLink
Log in

Productivity slowdown and misallocation in the post-recession: What prevents recovery?

  • Published:
The Journal of Technology Transfer Aims and scope Submit manuscript

Abstract

This study explores the effects of the 2008 global economic crisis on the labor allocation and productivity in Luxembourg. The analysis is based on firm-level data from manufacturing and non-financial service sectors and finds a dramatic productivity slowdown after 2008. The study reveals that the cleansing effect of recession did not function effectively which would otherwise improve the efficiency in the labor allocation and counterbalance the productivity slowdown. The firm entry and job creation rates are lower in the post-crisis period, but the job destruction is not significantly altered by the crisis. The findings call attention for the strict employment protection legislation that possibly plays a role in preventing reallocation towards more efficient establishments. Relaxing the employment protection legislation simultaneously with facilitating the entry and growth of young firms is expected to promote creative destruction, improve allocative efficiency and speed up the post-crisis recovery.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3

Source: http://www.oecd.org/employment/emp/oecdindicatorsofemploymentprotection.htm

Fig. 4
Fig. 5
Fig. 6
Fig. 7
Fig. 8

Similar content being viewed by others

Notes

  1. An alternative dataset could be the Structural Business Survey (SBS) that contains a wider set of variables, but its coverage is limited in Luxembourg. The SBS excludes more than half of the firms or the total labor in service sectors. Moreover, the SBS does not cover a great portion of small and young firms whose job creation and destruction performance is of particular interest in this study. To test the robustness of results retrieved using the Business Register, I compare them with those based on the SBS. The results do not significantly differ for the sectors where the SBS covers more than half of the firm population.

  2. Emerging body of empirical evidence shows that much of the differences in economic performance across countries can be explained by the efficiency in the allocation of production factors. An incomplete list of studies in this direction includes Banerjee and Duflo (2005), Jeong and Townsend (2007), Alfaro et al. (2008), Hsieh and Klenow (2009) and Bartelsman et al. (2013).

  3. Venn (2009) suggests that the IEP is robust to alternative classification and weightings of subcategory components.

  4. The IEP’s for the individual and collective dismissals are computed based on the length of notice periods, the amount of severance payments, definition, coverage and the amount of compensation for unfair dismissals. The indicators for the temporary work agency employment and fixed-term contracts measure the strictness of regulations such as the legal framework determining the activities appropriate to temporary contracting, restrictions on number of contract renewals, maximum duration of temporary assignments and fixed-term contracts, equal treatment of regular and temporary agency workers.

  5. The calculation of the entrants’ contribution to aggregate productivity is sensitive to the selection of the time interval, so that a wider interval would lead to a larger entry contribution.

  6. Alternatively, I introduce a crisis dummy only for the three years after 2008 in which case I obtained a lower number of significant estimates, but the overall results do not change.

References

  • Alfaro, L., Charlton, A., & Kanczuk, F. (2008). Plant-size distribution and cross-country income differences. NBER Working Papers 14060, National Bureau of Economic Research, Inc.

  • Autor, D. H., Kerr, W. R., & Kugler, A. D. (2007). Does employment protection reduce productivity? Evidence From US States. Economic Journal, 117(521), 189–217.

    Article  Google Scholar 

  • Baily, M. N., Bartelsman, E. J., & Haltiwanger, J. (2001). Labor productivity: Structural change and cyclical dynamics. The Review of Economics and Statistics, 83(3), 420–433.

    Article  Google Scholar 

  • Banerjee, A. V., & Duflo, E. (2005). Growth theory through the lens of development economics. In P. Aghion & S. Durlauf (Eds.), Handbook of economic growth, volume 1 of handbook of economic growth (chapter 7) (pp. 473–552). Amsterdam: Elsevier.

    Chapter  Google Scholar 

  • Bartelsman, E., Haltiwanger, J., & Scarpetta, S. (2004). Microeconomic evidence of creative destruction in industrial and developing countries. Policy Research Working Paper Series 3464, The World Bank.

  • Bartelsman, E., Haltiwanger, J., & Scarpetta, S. (2013). Cross-country differences in productivity: The role of allocation and selection. American Economic Review, 103(1), 305–334.

    Article  Google Scholar 

  • Bergoeing, R., Loayza, N., & Repetto, A. (2004). Slow recoveries. Journal of Development Economics, 75(2), 473–506.

    Article  Google Scholar 

  • Birch, D. L. (1981). Who creates jobs. Public Interest, 65(3), 3–14.

    Google Scholar 

  • Caballero, R. J., & Hammour, M. L. (1994). The cleansing effect of recessions. American Economic Review, 84(5), 1350–1368.

    Google Scholar 

  • Caballero, R. J., & Hammour, M. L. (1996). On the timing and efficiency of creative destruction. The Quarterly Journal of Economics, 111(3), 805–852.

    Article  Google Scholar 

  • Criscuolo, C., Gal, P. N., & Menon, C. (2014). The dynamics of employment growth: New evidence from 18 Countries. CEP Discussion Papers, Centre for Economic Performance, LSE dp1274, Centre for Economic Performance, LSE.

  • Davis, S. J., Haltiwanger, J. C., & Schuh, S. (1998). Job creation and destruction. Cambridge: MIT Press.

    Google Scholar 

  • Davis, S. J., & Haltiwanger, J. C. (1992). Gross job creation, gross job destruction, and employment reallocation. The Quarterly Journal of Economics, 107(3), 819–863.

    Article  Google Scholar 

  • Davis, S. J., Haltiwanger, J., & Schuh, S. (1996). Small business and job creation: Dissecting the Myth and reassessing the facts. Small Business Economics, 8(4), 297–315.

    Article  Google Scholar 

  • Davis, S. J., Jason Faberman, R., Haltiwanger, J., Jarmin, R., & Miranda, J. (2010). Business volatility, job destruction, and unemployment. American Economic Journal: Macroeconomics, 2(2), 259–287.

    Google Scholar 

  • Davis, S. J., Jason Faberman, R., & Haltiwanger, J. (2012). Labor market flows in the cross section and over time. Journal of Monetary Economics, 59(1), 1–18.

    Article  Google Scholar 

  • Decker, R., Haltiwanger, J., Jarmin, R., & Miranda, J. (2014). The role of entrepreneurship in US job creation and economic dynamism. Journal of Economic Perspectives, 28(3), 3–24.

    Article  Google Scholar 

  • Fort, T. C., Haltiwanger, J., Jarmin, R. S., & Miranda, J. (2013). How firms respond to business cycles: The role of firm age and firm size. IMF Economic Review, 61(3), 520–559.

    Article  Google Scholar 

  • Foster, L., Grim, C., & Haltiwanger, J. (2013). Reallocation in the great recession: Cleansing or not?. Working Papers 13-42, Center for Economic Studies, US Census Bureau.

  • Haltiwanger, J., & Davis, S. J. (1999). On the driving forces behind cyclical movements in employment and job reallocation. American Economic Review, 89(5), 1234–1258.

    Article  Google Scholar 

  • Haltiwanger, J., Scarpetta, S., & Schweiger, H. (2014). Cross country differences in job reallocation: The role of industry, firm size and regulations. Labour Economics, 26, 11–25.

    Article  Google Scholar 

  • Haltiwanger, J. C., Jarmin, R. S., & Miranda, J. (2013). Who creates jobs? Small versus large versus young. The Review of Economics and Statistics, 95(2), 347–361.

    Article  Google Scholar 

  • Hopenhayn, H., & Rogerson, R. (1993). Job turnover and policy evaluation: A general equilibrium analysis. Journal of Political Economy, 101(5), 915–938.

    Article  Google Scholar 

  • Hsieh, C.-T., & Klenow, P. J. (2009). Misallocation and manufacturing TFP in China and India. The Quarterly Journal of Economics, 124(4), 1403–1448.

    Article  Google Scholar 

  • Jeong, H., & Townsend, R. (2007). Sources of TFP growth: Occupational choice and financial deepening. Economic Theory, 32(1), 179–221.

    Article  Google Scholar 

  • Kugler, A. D., Jimeno, J. F., & Hernanz, V. (2003). Employment consequences of restrictive permanent contracts: Evidence from Spanish labor market reforms. Technical report, IZA Discussion paper series.

  • Mortensen, D., & Pissarides, C. A. (1994). Job creation and job destruction in the theory of unemployment. Review of Economic Studies, 61(3), 397–415.

    Article  Google Scholar 

  • Martin, J., & Scarpetta, S. (2012). Setting it right: Employment protection, labour reallocation and productivity. De Economist, 160(2), 89–116.

    Article  Google Scholar 

  • Neumark, D., Wall, B., & Zhang, J. (2011). Do small businesses create more jobs? New evidence for the United States from the National Establishment Time Series. The Review of Economics and Statistics, 93(1), 16–29.

    Article  Google Scholar 

  • OECD. (2010). OECD employment outlook. Paris: OECD Publishing.

    Google Scholar 

  • OECD. (2012). OECD economic surveys: Luxembourg 2012. OECD Economic Surveys: Luxembourg. OECD Publishing. ISBN 9789264188877.

  • OECD. (2013). OECD employment outlook. Paris: OECD Publishing.

    Google Scholar 

  • Peroni, C. (2012). Productivity and competitiveness in Luxembourg: Productivity and the crisis—The evolution of total factor productivity in Luxembourg from 1995 to 2010 (LuxKlems Project). Perspectives de politique économique No. 18, Observatoire de la compétitivité.

  • Postel-Vinay, F., & Robin, J.-M. (2002). Equilibrium wage dispersion with worker and employer heterogeneity. Econometrica, 70(6), 2295–2350.

    Article  Google Scholar 

  • Schivardi, F., & Torrini, R. (2008). Identifying the effects of firing restrictions through size-contingent differences in regulation. Labour Economics, 15(3), 482–511.

    Article  Google Scholar 

  • Venn, D. (2009). Legislation, collective bargaining and enforcement: Updating the OECD employment protection indicators. OECD Social, Employment and Migration Working Papers 89, OECD Publishing.

Download references

Author information

Authors and Affiliations

  1. Institut national de la statistique et des études économiques du Grand-Duché du Luxembourg (STATEC), 13 rue Erasme, 1468, Luxembourg, Luxembourg

    Umut Kılınç

Authors
  1. Umut Kılınç
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Umut Kılınç.

Additional information

This work is done as a part of a research project co-funded by the Marie Skłodowska-Curie actions and the FNR, Luxembourg. This work is independent of the STATEC and all errors are mine.

Appendix

Appendix

See Tables 2, 3, 4, 5, 6 and Fig. 9.

Table 2 Description of firm size and age classes
Full size table
Fig. 9
figure 9

Job creation and destruction without entry and exit (%)

Full size image
Table 3 Job creation and destruction regressions (1)
Full size table
Table 4 Job Creation and destruction regressions (2)
Full size table
Table 5 Job creation and destruction regressions (3)
Full size table
Table 6 Job creation and destruction regressions (4)
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Kılınç, U. Productivity slowdown and misallocation in the post-recession: What prevents recovery?. J Technol Transf 43, 1542–1570 (2018). https://doi.org/10.1007/s10961-016-9541-0

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10961-016-9541-0

Keywords

JEL Classification

Search

Navigation