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Cyclical Worker Flows: Cleansing vs. Sullying

May 2021

Working Paper Number:

CES-21-10

Abstract

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.

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productive, economist, payroll, employee, labor productivity, labor, recession, job, worker, regressing, hire, regress, unemployed, downturn, recession employment

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Bureau of Labor Statistics, Center for Economic Studies, Total Factor Productivity, University of Maryland, Longitudinal Business Database, Department of Economics, Employer Identification Numbers, North American Industry Classification System, Longitudinal Employer Household Dynamics, AKM, Census Bureau Business Register, Quarterly Census of Employment and Wages, Census Bureau Disclosure Review Board, North American Industry Classi

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