Productivity Growth over the Business Cycle: Cleansing Effects of Recessions

Using recent productivity decomposition methods, we provide new insights on the impact of recent recessions on the micro origins of aggregate productivity growth for a small, open and developed economy, Belgium. We use a dataset that includes both manufacturing and services industries for the period 1997-2014. The empirical framework discerns between incumbents, entering and exiting firms and provides insights on productivity dynamics within each of these groups. We find evidence on cleansing effects of recessions. This cleansing effect is more outspoken in manufacturing industries compared to services industries. Furthermore, our results indicate that entering and exiting firms underperform on average compared to incumbent firms and that job allocation and productivity are best aligned in exiting firms and worst aligned in entering firms.status: publishe