Cyclical Worker Flows: Cleansing vs. Sullying
Do recessions speed up or impede productivity-enhancing reallocation? To investigate this question, we use U.S. linked employer-employee data to examine how worker flows contribute to productivity growth over the business cycle. We find that in expansions high-productivity firms grow faster primarily by hiring workers away from lower-productivity firms. The rate at which job-to-job flows move workers up the productivity ladder is highly procyclical. Productivity growth slows during recessions when this job ladder collapses. In contrast, flows into nonemployment from low productivity firms disproportionately increase in recessions, which leads to an increase in productivity growth. We thus find evidence of both sullying and cleansing effects of recessions, but the timing of these effects differs. The cleansing effect dominates early in downturns but the sullying effect lingers well into the economic recovery.
We thank Paul Oyer, Kristin McCue, Jose Mustre-del-Rio, and participants of the 2015 Society of Labor Economists Conference, the 2015 NBER Conference on the Role of Firms in Wage Inequality, the Spring 2017 Midwest Macro Conference, the 2017 Federal Reserve Board Conference on Labor Market Dynamics and the Macroeconomy, the 2021 ASSA Conference and seminar participants at Drexel University, Arizona State University and U.S. Census Bureau, for helpful comments and suggestions. Early results were circulated in a 2015 draft entitled “Do Workers Move Up the Firm Productivity Job Ladder?” John Haltiwanger was also a part-time Schedule A employee of the U.S. Bureau of the Census at the time of the writing of this paper. Any opinions and conclusions expressed herein are those of the authors and do not represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed (CBDRB-FY21-CED006-0002). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.