productivity and business dynamics through the lens of
TRANSCRIPT
PRODUCTIVITY AND BUSINESS DYNAMICS THROUGH THE LENS OF COVID-19: THE SHOCK, RISKS AND OPPORTUNITIES
Chiara Criscuolo, OECD
29 September 2021, ECB Forum on Central Banking
PRODUCTIVITY AND BUSINESS DYNAMICS THROUGH THE LENS OF COVID-19: THE SHOCK, RISKS AND OPPORTUNITIES
Chiara Criscuolo, OECD
29 September 2021, ECB Forum on Central Banking
COVID-19 Crisis
Cross-Sectoral Reallocation
Creative Destruction and Within-Sector
Reallocation
EntryWithin-Sector Reallocation
Exit
Adoption of Digital
TechnologiesTelework
COVID-19, Productivity and business dynamics
Intangibles
COVID-19 Crisis
Cross-Sectoral Reallocation
Creative Destruction and within-sector
reallocation
EntryWithin-sector reallocation
Exit
Adoption of digital technologies
Telework
Intangibles
Sectoral Productivity Pecking Order in the
strength of the shockChange in hours worked relative to previous (half)
year by major sectors of economic activity
Productivity enhancing reallocation:• Low productivity sectors
cut hours relatively more
• Very different from GFC
Challenges:• Increase in productivity
(+1.5%) but destruction in output (-6.3%)
• Long-term? cyclical vs structural (e.g. change in consumers’ behaviour)
• Short to medium term: high costs & frictions cross-sectoral reallocation
COVID-19 Crisis
Cross-Sectoral Reallocation
Creative Destruction and Within-Sector
Reallocation
Exit Entry Within-Sector Reallocation
Adoption of Digital
TechnologiesTelework
Productivity enhancing
Long-term vs cyclicalProductivity growth +output Destruction? High Costs of reallocation
Intangibles
Unexpected Decline in Bankruptcies
-80
-60
-40
-20
0
20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%Belgium
-60
-40
-20
0
20
40
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%Finland
-80
-60
-40
-20
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%France
-50
-40
-30
-20
-10
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%Germany
-70
-60
-50
-40
-30
-20
-10
0
10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%Netherlands
-60
-40
-20
0
20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%United Kingdom
difference bankruptcies 2020 difference cumul. bankruptcies 2020 vs 2019
difference bankruptcies 2021
difference cumul. bankruptcies 2021 vs 2019
-80
-60
-40
-20
0
20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%Belgium
-60
-40
-20
0
20
40
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%Finland
-80
-60
-40
-20
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%France
-50
-40
-30
-20
-10
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%Germany
-70
-60
-50
-40
-30
-20
-10
0
10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%Netherlands
-60
-40
-20
0
20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%United Kingdom
difference bankruptcies 2020 difference cumul. bankruptcies 2020 vs 2019
difference bankruptcies 2021
difference cumul. bankruptcies 2021 vs 2019
• Sizeable support measures in place• Regulatory measures that delayed
bankruptcies
-40
-20
0
20
40
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Belgium
-10
-5
0
5
10
15
20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Finland
-60
-40
-20
0
20
40
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
France
-30
-20
-10
0
10
20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Germany
-40
-30
-20
-10
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Italy
-20
-10
0
10
20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Netherlands
-80
-60
-40
-20
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Portugal
-80
-60
-40
-20
0
20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Spain
-100
-50
0
50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
United Kingdom
-50
0
50
100
150
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
United States
difference entry 2020 vs 2019 difference cumul. entry 2020 vs 2019
difference entry 2021 vs 2019 difference cumul. entry 2021 vs 2019
Heterogeneous Recovery in Entry
Entry rates across sectors:Telework potential:+veCustomer contact: -ve
Online retail: entry rates
difference entry 2020 vs 2019 difference cumul. entry 2020 vs 2019
difference entry 2021 vs 2019 difference cumul. entry 2021 vs 2019
difference entry 2020 vs 2019 difference cumul. entry 2020 vs 2019
difference entry 2021 vs 2019 difference cumul. entry 2021 vs 2019
-40
-20
0
20
40
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Belgium
-10
-5
0
5
10
15
20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Finland
-60
-40
-20
0
20
40
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
France
-30
-20
-10
0
10
20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Germany
-40
-30
-20
-10
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Italy
-20
-10
0
10
20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Netherlands
-80
-60
-40
-20
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Portugal
-80
-60
-40
-20
0
20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
Spain
-100
-50
0
50
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
United Kingdom
-50
0
50
100
150
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
%
United States
difference entry 2020 vs 2019 difference cumul. entry 2020 vs 2019
difference entry 2021 vs 2019 difference cumul. entry 2021 vs 2019
• Reallocation during the GFC has been less cleansing than in previous crises
• During COVID-19, reallocation slowed down:
– Regulation +support: job matches were preserved
• Two mechanisms may potentially weaken the cleansing effect of the subdued exit:
– Sectoral shock: weakened negative correlation between exit and productivity
– support measures stifling the reallocation process
• Until now: reallocation – although slower (delayed?) – has not been distortive
• Risk of zombification?
– Trade-offs when exiting or adapting support measures: protection vs distortion
Reallocation: Productivity-enhancing or sullying?
COVID-19 Crisis
Cross-Sectoral Reallocation
Creative Destruction and Within-Sector
Reallocation
EntryWithin-Sector Reallocation
Exit
Adoption of Digital
TechnologiesTelework
IntangiblesProductivity enhancing
Subdued but not distortive
Trade off: “protection vs Zombification”
Long-term vs cyclicalProductivity growth +output Destruction? High Costs of reallocation
• Virtue of crises: lower firms’ opportunity costs to reorganise and innovate
• COVID quasi-natural experiment:
– Firms forced to adjust the way they produce, are organized (telework), and engage with their customers (shift in demand: e.g. from offline to online)
• Use of “potential capital”:
– Source of resilience (estimated to contribute roughly 10 percent of GDP on average)
Adoption and Reorganisation during Crises
• Source of resilience
• Savings due to lower commuting costs
• Stigma of telework broken and expectations of hybrid mode of working
• Link with productivity a priori ambiguous: – Worker-level efficiency depends on telework intensity; Firm-level
efficiency additionally depends on coordination and in the long-term, impact on knowledge-sharing is crucial
• Potential risks: – In the long term, lower innovation both within firm and across firms
(loss of agglomeration externalities)
– Increased inequalities
– Changes in role of cities, real estate prices etc.
The Rise of Telework
• Shock pushed fast adoption of digital technologies:• After initial drop in output due to adjustments, increase firm productivity
– Increased catch-up of SMEs, lower prod. Dispersion and lower inequality
• Heterogeneous adoption patterns:
– Larger, more digital and more productive firms more likely to adopt (multiple and more advanced) technologies.
• Importance of complementary (intangible) assets
• Intangibles: scalability, sunkenness, synergies, non-rivalry, non-excludability
– Risks:
• Perpetuate (if not increase) dispersion in performance observed pre-crisis
• Increase in wage inequality
• Increase in mark-ups and concentration [“market power”?]
Digital Adoption:
Opportunities, Complementarities and Risks
Mark-ups have increased - especially for top
digital firms
Average mark-up trends: high- vs low-digital
High-digital
Low-digital
-0.02
0
0.02
0.04
0.06
0.08
0.1
0.12
2002 2004 2006 2008 2010 2012 2014 2016 2018
Markup trends for firms at the top of the markup distribution: high vs low digital
Low-digital
High-digital
Mark-up trends for firms at the top of the distribution: high vs low-digital
Risks: Concentration and M&As
-0.1
-0.05
0
0.05
0.1
0.15
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Change since 2002
All High digital intensity Low digital intensity
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
2016 2017 2018 2019 2020
Share
High digital intensity
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
2016 2017 2018 2019 2020
Share
Low digital intensity
Acquirer TargetAcquirer
Trends in share of M&A activity (in values)Concentration (share of sales Top 8) has increased in the last decade
75%
growth
(1) (2) (3)
Log Value of M&A dealsLagged concentration 0.122*** 0.081** 0.081**
(0.043) (0.040) (0.040)
Top 8 1.949*** 1.740***
(0.102) (0.120)
Top8 x Digital 0.447***
(0.175)Observations 28145 28145 28145Pseudo R-Square 0.122 0.155 0.156Country and Sector and Year FE YES YES YESNum. Countries 12 12 12
Will Concentration increase? A look at M&A
Dynamics
COVID-19 Crisis
Cross-Sectoral Reallocation
Creative Destruction and Within-Sector
Reallocation
EntryWithin-Sector Reallocation
Exit
Adoption of Digital
Technologies
Telework
IntangiblesProductivity enhancing Subdued but not distortive
New opportunities
Trade off: protection vs zombificationLong-term vs cyclicalProductivity growth +output Destruction? High Costs of reallocation
Digital + intangibles: higher resilience higher productivity & higher performance at the bottom
Heterogeneous adoption: dispersion and (wage) inequalityRise in concentration
Telework and productivity ambiguous (at firm and local level)
1. Fostering digital diffusion and sectoral reallocation:
• Policies that facilitate labour mobility and provide workers with the necessary skills (e.g. digital)
• Digital infrastructure
• Support complementary investment in intangible assets
2. Enabling entry, exit and growth of innovative firms
• New opportunities: e.g. new business models, green and digital/remote
• Reduce red tape and regulatory uncertainty and level the playing field
• Support experimentation and growth, and improve the efficiency of liquidation procedures and of judicial systems
3. Maintaining a competitive environment
Structural Policy: a strategic Ally to Monetary and Fiscal
Policies for a Green, Digital and Inclusive Recovery
THANK YOU
Increased Productivity Dispersion
back
90
100
110
120
130
140
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
High digital intensity
EA(15) frontier (top 5%)
Global frontier (top 5%)
Firms below the EA(15) frontier
Index normalised to 100 in the initial year
90
100
110
120
130
140
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Low digital intensity
EA(15) frontier (top 5%)
Global frontier (top 5%)
Firms below the EA(15) frontier
Index normalised to 100 in the initial year
Investment in intangibles was more resilient
that investment in tangibles
90
95
100
105
110
115
120
125
130
135
140