the replacement problem abstract a prototypical vintage capital model of economic growth is developed where the decision to replace old technologies with new ones is modeled explicitly technological change is investment specific depreciation in this environment is an economic not a physical concept the vintage capital economy s balanced growth paths and transitional dynamics are analyzed the transitional dynamics are markedly different from the standard neoclassical growth model

why does the cyclical behavior of real wages change over time the cyclical behavior of real wages has evolved from mildly countercyclical during the interwar period to modestly procyclical in the postwar era this paper presents a general equilibrium business cycle model that helps explain the evolution in the model changes in the real wage cyclicality arise from interactions between nominal wage and price rigidities and an evolving input output structure

the brevity and violence of contractions and expansions abstract early studies of business cycles argued that contractions in economic activity were briefer shorter and more violent rapid than expansions this paper systematically investigates this claim and in the process discovers a robust new business cycle fact contractions in employment are briefer and more violent than expansions but we cannot reject the null of equal brevity and violence for expansions and contractions in output the difference arises because employment typically lags output around peaks but they coincide in their troughs we discuss the performance of existing business cycle models in accounting for this fact and conclude that none can fully account for it we then show that a business cycle model with asymmetric adjustment costs on employment and a choice of when to scrap old technologies can account for the business cycle fact both qualitatively and quantitatively

industry dynamics with stochastic demand we study the dynamics of an industry subject to aggregate demand shocks where the productivity of a firm s technology evolves stochastically over time to characterize the intertemporal evolution of the distribution of firms we discuss in particular how exit decisions aggregate output profits and distributions of firm productivities vary a across different demand realization paths b along a demand history path detailing the effects of continued good or bad market conditions and c for different anticipated future market conditions we show how poor demand conditions can lead to increased exit of low productivity firms at all future dates and states and raise welfare due to the impact on exit decisions

creative destruction and uncertainty uncertainty rises in recessions but does uncertainty cause downturns or vice versa this paper argues that counter cyclical uncertainty fluctuations are a by product of technology growth in a firm dynamics model with endogenous technology adoption faster technology growth widens the dispersion of firm level productivity shocks a benchmark uncertainty measure moreover faster technology growth spurs a creative destruction process generates a temporary downturn and renders uncertainty counter cyclical estimates from structural vector autoregressions vars on u s data confirm the model s predictions on average 1 4 of the cyclical variation in uncertainty is driven by technology shocks this fraction rises to 2 3 around the dot com bubble

innovation and growth supply and demand factors in the recent us expansion it is widely held that the social economic context of the us characterised by labour market flexibility and deregulation of product and capital markets lies at the basis of the innovative capacity displayed by the country s productive system in the 1990s thus accounting for the growth differential with europe starting from a different interpre tative model of innovation and growth the paper focuses on both supply institutional and technological and demand factors it is argued that when their interaction is taken into account there is no strong evidence that more deregulated labour and product markets are among the factors allowing for us growth in accordance with the view that there is no single road to innovation and growth this leaves room for the exploration and implementation of policies that might reconcile innovation and growth with safeguards such as those provided by europe s social institutions

creacion y destruccion de empleos en el sector manufacturero del peru 2002 2007 creation and destruction of jobs in peru s manufacturing sector 2002 2007 by way of a set of productive factors from a sample of manufacturing firms that created and destroyed jobs in peru s formal manufacturing sector for the period 2002 2007 this paper estimates the conditional labor demand equation under three interpretations the results of these assessments suggest that job creation and destruction were statistically related to positive and negative changes of real output respectively however the rates of change of these job flows were lower than those of the real output value on the other hand job flows were positively associated with firms degrees of processing other minor factors associated with job flows were the size of firms and the capital labor ratio

optimal monetary policy with informational frictions we study optimal policy in a business cycle setting in which firms hold dispersed private information about or are rationally inattentive to the state of the economy the informational friction i

the effect of business cycles on growth keynes vs schumpeter i introduction do business cycles matter the question would have seemed recherche a scant decade ago when understanding and explaining business cycle phenomena were the bread and butter of macroeconomics but recently with the revival of interest in growth theory it has become customary to argue that business cycles are an unimportant second order problem the locus classicus for this position is lucas 1987 a particularly sharp statement of it launches the recent growth textbook by barro and sala i martin 1995 4 5 if we want to understand why countries differ dramatically in standards of living then we have to understand why countries experience such sharp divergences in long term growth rates even small differences in these growth rates when accumulated over a generation or more have much greater consequences for standards of living than the kind of short term business fluctuations that have typically occupied the attention of macro economists to put it another way if we can learn about government policy options that have even small effects on the long term growth rate then we can contribute much more to improvements in standards of living than has been provided by the entire history of macroeconomic analysis of countercyclical policy and fine tuning certainly there is a superficial ring of truth to this assertion since one s standard of living today is obviously higher in a rich country in a recession than in a poor country in a boom however to infer from this that business cycles are unimportant one needs to assume additionally a dichotomy between business cycles and growth so that explaining why economies grow and why they experience fluctuations are treated as analytically distinct questions 1 if the dichotomy is granted then the conclusion follows because a policy of eliminating business cycle fluctuations would have no effect on the growth rate and so would confer a smaller welfare benefit over a long time horizon than a small increase in the growth rate over that same horizon but in our view this is a false dichotomy we believe that business cycles can affect growth granted this are business cycles good or bad for growth much of the emerging literature seems to suggest that recessions are good for growth if correct this would seem to make countercyclical stabilization policy not just unimportant but positively harmful caballero and hammour 1994a b present models in which recessions are viewed as times of cleansing or a pit stop for the economy so that recessions are good for growth aghion and saint paul 1991 argue in the same vein at first glance these models would seem to suggest that recessions and therefore business cycles are good for growth but on closer inspection there are two analytically distinct questions i are recessions good for growth and ii are business cycles good for growth suppose one accepts the caballero hammour argument that recessions are good for growth pari passu it should follow symmetrically that booms are bad for growth so that the net effect of a business cycle washes out to a first order of approximation so that a fortiori a successful countercyclical policy which eliminated business cycles would have no first order effect on growth conlisk 1989 by contrast presents a model which focuses specifically on the second question one of the few such papers of which we are aware his model is a neo schumpeterian evolutionary growth model which predicts that business cycles will be good for growth because of greater opportunities for innovation we disagree with these conclusions a more severe business cycle leads to increased uncertainty for firms which we think ought to reduce the return to capital and hence reduce the incentive to invest this should lead to reduced capital accumulation and therefore to slower growth along the transitional path and also to a smaller steady state capital labour ratio in a neoclassical growth model or lead to a slower overall growth rate in an endogenous growth model

technology shocks and job flows we consider a version of the solow growth model where technological progress can be investment specific or investment neutral the labour market is subject to search frictions and the existing productive units may fail to adopt the most recent technological advances technological progress can lead to the destruction of technologically obsolete jobs and cause unemployment we calibrate the model to replicate the high persistence that characterizes the dynamics of firms neutral technology and the frequency of firms capital adjustment we find that neutral technological advances increase job destruction and job reallocation and reduce aggregate employment investment specific technological advances reduce job destruction have mild effects on job creation and are expansionary hence neutral technological progress prompts schumpeterian creative destruction while investment specific technological progress operates essentially as in the standard neoclassical growth model using structural var models we provide support to the key dynamic implications of the model copyright 2007 wiley blackwell

equilibrium in a durable goods market with lumpy adjustment abstract durable goods are an important component of the business cycle equilibrium models of durable goods markets are made difficult by the lumpy nature of individual purchases we show that a straightforward approximation of the distribution of durable goods holdings gives rise to a tractable equilibrium model we analyze the case of competition as well as that of a monopoly producer

the dynamics of technological unemployment this article compares the short and long run effects of technological progress on employment it presents a simple model of frictional unemployment capturing the negative creative destruction effects of technological change on employment in the long run faster technological change accelerates job obsolescence which reduces the equilibrium level of employment but it is also shown to have short run positive and potentially important effects on employment this tends to partially reconcile the schumpeterian view of the effects of technological change on labor markets with facts such as the response of most oecd unemployment rates to the 1970s productivity slowdown

coordination versus flexibility in wage formation a focus on the nominal wage impact of productivity in germany greece ireland portugal spain and the united states wage coordination between countries of the european monetary union emu aims at aligning nominal wage growth with labour productivity growth at the national level we analyse the developments in germany the emu s periphery countries greece ireland portugal and spain along with the united states over the period 1980 to 2010 apart from the contribution of productivity to nominal wages we take into account the contributions of prices unemployment replacement rates and taxes by means of an econometrically estimated nonlinear equation resulting from a wage bargaining model we further study the downward rigidities of nominal wages the findings show that in past times of low productivity price inflation and reductions in unemployment still put significant upward pressure on nominal wage growth the periphery countries are far from aligning nominal wage growth with productivity growth german productivity is a major wage determinant but surely not the only one within the context of a free bargaining

productivity during recessions with banking crises inter industry evidence abstract using sectoral data from 104 countries over 40 years we show that per worker productivity declines during recessions the adverse effect is particularly strong if recessions are accompanied by banking crises and especially in sectors and countries with greater financial frictions

dynamics of worker flows and vacancies evidence from the sign restriction approach this paper establishes robust dynamic features of the worker reallocation process in the us labor market i use structural vars with sign restrictions which take the form of restricting the short run negative relationship between vacancies and unemployment i e beveridge curve despite the weakness of these restrictions they reveal a clear unambiguous pattern that when unemployment increases and vacancies drop i both the separation rate and gross separations rise quickly and remain persistently high ii the job finding rate and vacancies drop in a hump shaped manner and iii gross hires respond little initially but eventually rise these results point to the importance of job loss in understanding us labor market dynamics this pattern also holds with respect to different kinds of shocks that induce the same beveridge curve relationship this paper also considers the disaggregate model which uses data disaggregated into six demographic groups and incorporates transitions into and out of the labor force i show that the separation rate continues to play a dominant role among prime age male workers while for other groups changes in the job finding rate are more important copyright 2009 john wiley sons ltd

unemployment dynamics across oecd countries abstract the european community and the us have experienced vastly different unemployment dynamics over the last two decades this paper investigates whether these differences are due to exposure to different shocks or reacting differently to the same shocks with the premise of a search theoretic framework and a structural var methodology the paper robustly identifies aggregate versus reallocative shocks with the exception of spain where most of the dynamics seem to be driven by reallocation it is found that most differences in unemployment dynamics arise because of differences in responses to shocks in particular the us labour market is quicker to adjust than the european community this implies that eec economies might be dynamically sclerotic even if the size of the steady state labour market flows give the impression that european labour markets are quite active various identifying assumptions additional labour supply shocks and different variables are used yet the results appear robust

unemployment dynamics in britain we examine the inter related dynamics of the unemployment flows and stock our model allows them to be linked through the standard accounting identity but also through behavioural relationships we find that for the uk the bulk of the correlation between duration and the unemployment stock arises from the dependence of duration on unemployment taking careful account of the inter temporal identity outflow shocks have contributed little to the evolution of unemployment since the late 1960s given that the correlation of duration and unemployment arises from the behavioural relationship we show that unemployment dynamics arise mostly from shocks to the inflow unemployment remains one of europe s more pressing economic and social problems as highlighted in the eu s lisbon declaration of 2000 a dynamic approach to unemployment starts from the recognition that unemployment is a stock and changes through shocks to the outflow and inflow the research and policy focus has generally been on the outflow process or equivalently unemployment duration a glance at figure 1 shows why this might be so it reveals a very strong co movement of the unemployment rate and the proportion of the unemployed out of work for a year or more analysts have used data like this to argue that the source of unemployment fluctuations has been changes in the outflow process 1 possibly as a consequence of this most policies directed at reducing unemployment focus on improving the search effectiveness and employability of the currently unemployed the unemployment flows and stock are related in quite complex ways and in this paper we focus on these inter related dynamics the model we use allows them to be linked in two ways first there is the simple accounting relationship whereby shocks to the flows accumulate in the stock second search and matching models suggest behavioural relationships of the flows depending on unemployment the presence of the nonlinear accounting identity in the model makes the analysis of the joint system problematic so we proceed sequentially investigating first one link and then the other we find that for the uk the bulk of the correlation between duration and the unemployment stock displayed in figure 1 arises from the dependence of the former on the latter we find a strong dependence of the outflow rate on unemployment taking careful account of the inter temporal identity on the other hand outflow shocks have contributed little to the evolution of unem

a theory of wages and labor demand with intra firm bargaining and matching frictions this article provides a model of labor market equilibrium with search and within firm strategic bargaining we yield explicit closed form solutions with heterogeneous labor inputs and capital the solution exhibits overemployment we show that higher relative bargaining power for some groups of workers may lead to overemployment relative to other groups with such other groups being underemployed instead if they have a lower relative bargaining power similarly the hold up problem between capitalists and employees does not necessarily lead to underinvestment in physical capital beyond the neo classical analysis firms are the field of several strategic interactions between capital owners and labor between marginal employees and incumbents and more generally between different groups with various bargaining positions within the firm it is usually considered that the bargaining power of workers entails an employment level that is lower than in a competitive labor market and any increase in the bargaining power of workers raises unemployment these results are true for a wide class of models and notably in the now standard framework to analyze unemployment namely search and matching models of pissarides 2000 however stole and zwiebel 1996a 1996b show that the above results are totally changed in the intra firm bargaining model where employees engage in individual wage negotiation with the firm in fact under the assumption that contract incompleteness does not enable either party to commit to future wages and employment decisions they show that intra firm bargaining yields no rent for employees and gives rise to overemployment compared to a competitive labor market the basic idea of stole and zwiebel is that a firm with a diminishing marginal productivity of labor can decrease the bargained wage which increases in the marginal productivity of labor by raising employment in stole and zwiebel s setting firms overemploy strategically up to the point where workers get their reservation wage

the determinants of firms performance can finance constraints improve technical efficiency this paper analyses the mechanisms through which binding finance constraints can induce debt constrained firms to improve technical efficiency to guarantee positive profits this hypothesis is tested on a sample of firms belonging to the italian manufacturing technical efficiency scores are computed by estimating parametric production frontiers using the one stage approach as in battese and coelli battese g coelli t 1995 a model for technical efficiency effects in a stochastic frontier production function for panel data empirical economics 20 325 332 the results support the hypothesis that a restriction in the availability of financial resources can affect positively efficiency 2004 elsevier b v all rights reserved

appetite for destruction the impact of the september 11 attacks on business founding it is widely accepted that entrepreneurial creation affects destruction as new and better organizations technologies and transactions replace old ones this phenomenon is labeled creative destruction but it might more accurately be called destructive creation given the driving role of creation in the process we reverse the typical causal ordering and ask whether destruction may drive creation we argue that economic systems may get stuck in suboptimal equilibria due to path dependence and that destruction may sweep away this inertia and open the way for entrepreneurship to test this idea we need an exogenous destructive shock rather than destruction that is endogenous to the process of economic progress our identification strategy relies on the september 11 attacks as an exogenous destructive shock to the economic system centered on new york city consistent with our theoretical claim we find that 15months after the attacks the rate of business founding close to new york city exceeds the rate before the attacks even after controlling for the inflow of recovery funds furthermore the increase in the business founding rate after the attacks grows faster closer to manhattan than it does further away from the epicenter of destruction

comparative analysis of firm demographics and survival evidence from micro level sources in oecd countries in this paper we present cross country evidence on firm size distribution firm demographic and post entry performance for 10 oecd countries we use harmonized firm level data drawn from business registers or social security records these data enable international comparisons and the identification of idiosyncratic country effects while average firm size differs across countries due to both sectoral specialization and within sector characteristics we find similar degrees of firm churning across countries in most of them about 20 of firms enter and exit most markets every year and about 20 40 of entering firms fail within the first 2 years of life however post entry growth of successful entrants is much higher in the usa than in europe which may be indicative of barriers to firm growth as opposed to barriers to entry

editorial does good marketing cause bad unemployment questionable methods for increasing nominal wages reduce real wages i e buying power by creating inflation shortages lower quality and long term unemployment to increase real wages i e the ability to buy more economic principles prescribe increasing productivity i e greater output from less input in contrast marketing principles prescribes increasing the value of output i e greater customer benefits through innovation beyond increasing real wages innovation spawns new occupations better matching individuals with skills and providing greater nonmonetary benefits i e job satisfaction unfortunately threatened entrenched incumbents often solicit protectionist legislation claiming negative externalities e g short term unemployment lower wages and burdens on society innovation does require labor to move from inferior to superior organizations i e unemployment however protectionism only delays and dramatically aggravates the inevitable trauma associated with progress as worker skills firm practices and buyer welfare fall further behind recent attacks demonizing wal mart e g the dubious vlasic pickle claim epitomize this situation they are archaic vanilla protectionism menacing both imperiled consumers and every consumer driven business

retrospectives do productive recessions show the recuperative powers of capitalism schumpeter s analysis of the cleansing effect schumpeter has often been interpreted as a liquidationist someone who is convinced that economic crises are necessary and unavoidable and thus that government nonintervention is a sound policy in such crises the first two sections of this paper discuss schumpeter s views in greater detail and suggest that categorizing him as a liquidationist is an oversimplification and as an unrepentant noninterventionist is incorrect although schumpeter was certainly not a strong supporter of public interventions he did see a role for public expenditure programs in particular circumstances during periods of recession schumpeter believed firmly in what he described as the recuperative powers of capitalism however when a depression becomes pathological there could be a role for government to intervene in order to understand the overall picture of schumpeter s message we will first try to explain schumpeter s analysis of recessions depressions and the other stages of business cycles we will also discuss how schumpeter perceived the recuperative powers of capitalism a core concept in schumpeter s analysis that allows him to distinguish between physiological and pathological recessions in the 1990s an active line of research examined the possibility that recessions may have a productive character along with their more obvious negative outcomes because recessions in some way might hasten the process of reallocating economic recourses from slower growth to faster growth sectors such models were sometimes referred to as neo schumpeterian but given our analysis of schumpeter s work we will question whether this label is appropriate

does trade affect child health frankel and romer frankel j romer d 1999 does trade cause growth american economic review 89 3 379 399 documented positive effects of geographically determined trade openness on economic growth at the same time critics fear that openness can lead to a race to the bottom that increases pollution and reduces government resources for investments in health and education we use frankel and romer s gravity model of trade to examine how openness to trade affects children overall we find little harm from trade and potential benefits largely through slightly faster gdp growth

the cost of recessions revisited a reverse liquidationist view the observation that liquidations are concentrated in recessions has long been the subject of controversy one view holds that liquidations are beneficial in that they result in increased restructuring another view holds that this rise in restructuring is costly since liquidations are privately inefficient and essentially wasteful this paper proposes an alternative perspective on the basis of a combination of theory with empirical evidence on gross job flows and on financial and labour market rents we find that cumulatively recessions result in reduced rather than increased restructuring and that this is likely to be socially costly once we consider inefficiencies on both the creation and destruction margins copyright 2005 wiley blackwell

a computational general equilibrium model with vintage capital abstract this paper presents a vintage capital model assuming putty clay investment and perfect foresight the model is written in discrete time and is simulated by using a second order relaxation algorithm by computing the eigenvalues of the dynamic system we have checked the conditions of existence and uniqueness of a solution blanchard and kahn s conditions and identified the echo effect that characterizes vintage capital models and the related dynamics of creation and destruction by calibrating the model on french data it has been proved useful to explain the medium term movements in the distribution of income in france during the last three decades

theory ahead of language in the economics of unemployment this paper discusses from the perspective of modern theories of unemployment several unemployment concepts that have been used over the years it argues that many of these concepts are of limited value and are dominated by a few simple concepts that are basic in the analysis of stochastic general equilibrium models

contracting productivity growth in this paper we analyze the interactions between growth and the contracting environment in the production sector allowing incompleteness in contracting implies that viable production relationships for firms and workers and therefore the profitability of industries depend on the rates of innovation and growth the speed at which new innovations arrive in turn depends on the profitability of production for the usual reasons examined in the endogenous growth literature we show that these interactions can have important implications which are consistent with observed phenomena in both the micro and macro environment in particular we demonstrate that a technological shock increasing productivity of research can through this interaction lead to a productivity slowdown and a shift in labor market contracts away from firms providing implicit guarantees of lifetime employment and towards shorter term contractor type arrangements we show the consistency of an increase in the proportion of the labor force under short term employment increased relative returns of workers in high productivity sectors and increased income inequality with a productivity slowdown of finite duration

the structural determinants of external vulnerability the authors examine empirically how domestic structural characteristics related to openness and product and factor market flexibility influence the impact that terms of trade shocks can have on aggregate output for this purpose they apply an econometric methodology based on semi structural vector auto regressions to a panel of 90 countries with annual observations for the period 1974 2000 using this methodology the authors isolate and standardize the shocks estimate their impact on gdp and examine how this impact depends on the domestic conditions outlined above they find that larger trade openness magnifies the output impact of external shocks particularly the negative ones while improvements in labor market flexibility and financial openness reduce their impact domestic financial depth has a more nuanced role in stabilizing the economy it helps reduce the impact of external shocks particularly in environments of high exposure that is when trade and financial openness are high firm entry is unrestricted and labor markets are rigid

on the timing and efficiency of creative destruction we analyze the timing pace and efficiency of ongoing job reallocation that results from product and process innovation there are strong reasons why an efficient economy ought to concentrate both job creation and destruction during recessions when the opportunity cost of reallocation is lowest incomplete contracting between labor and capital can disrupt this synchronized pattern and decouple creation and destruction transactional difficulties also lead to technological sclerosis characterized by excessively slow renovation government incentives to production may alleviate high unemployment but exacerbate sclerosis in contrast creation incentives increase the pace of reallocation an optimal combination of both policies restores economic efficiency

monopoly human capital accumulation and development abstract monopoly is an important barrier to development for it restricts the mobility of workers this gives rise to specificity problem and consequently weakens workers incentives to invest in human capital in a two sector general equilibrium model calibrated to the facts about the labor market i find that in the long run gdp can rise by about 2 6 times if these distortions are removed even if the monopoly markup and the degree of specificity are set at modest levels

how the ins and outs shape differently the u s unemployment over time and across frequencies abstract although the u s case has been studied extensively the importance of job finding and separation rates to unemployment variability remains unsettled the aim of this paper is to contribute to this debate by adopting a novel lens wavelet analysis we resort to wavelet analysis to unveil time and frequency varying features regarding the contribution of the job finding and job separation rates for the u s unemployment rate dynamics drawing on this approach we are able to reconcile some apparently contradictory findings reported in previous literature we find that the job finding rate is more influential for the overall unemployment behaviour but the job separation rate also plays a critical role especially during recessions in particular the job separation rate accounts for on average 53 per cent of the unemployment variability at short run fluctuations during recessions in sharp contrast with an overall contribution of 21 per cent over time and across frequencies

job creation and job destruction by small firms an empirical investigation for the dutch manufacturing sector this paper studies the differences in behaviour of small and large firms concerning job creation and job destruction in the dutch manufacturing sector over the period 1978 1991 we find that both job creation and job destruction rates are higher in small firms than in large ones in addition we found that the persistence of jobs created in slumps are much higher for small firms than for large firms persistence rates of job destruction are however less connected to the state of the business cycle and increase with firm size more importantly small firms seem to reallocate their jobs in a continuous way as job turnover moves independent of the business cycle large firms on the other hand reallocate counter cyclically an obvious explanation for this phenomenon is that small firms are better equipped to adjust to shifts in economic circumstances large firms adjust only slowly and for them reallocating jobs in a recession is more advantageous than in a boom

information rigidities and asymmetric business cycles abstract we study the link between asymmetries of markups and firm exit rates and asymmetries in information acquisition along the u s business cycle we argue that a model of optimal firm exit under rational inattention produces lagged counter cyclical and positively skewed markups together with counter cyclical exit rates consistent with the empirical evidence our model also predicts counter cyclical information rigidities consistent with survey evidence

endogenous vs exogenously driven fluctuations in vintage capital models in this paper we present a particular case of the creative destruction model of caballero and hammour quart j econ 111 1996 805 851 in which both exogenous and endogenous fluctuation sources are present we show that job creation follows a delayed differential equation with periodic coefficients the delay is equal to the optimal age of capital goods the period of the coefficients is equal to the period of an exogenous profitability cycle we mathematically show that job creation is asymptotically periodic with the same period as the profitability cycle furthermore using an explicit numerical method we find that replacement echoes generally dominate the short run dynamics finally we find that the combination of the two fluctuations sources favors the appearance of asymmetries in job creation and job destruction patterns

the scarring effect of recessions abstract according to the conventional view recessions improve resource allocation by driving out less productive firms this paper posits an additional scarring effect recessions impede the developments of potentially superior firms by destroying them during their infancy a model is developed to capture both the cleansing and the scarring effects a key ingredient of the model is that idiosyncratic productivity is not directly observable but can be learned over time when calibrated with statistics on entry exit and productivity differentials the model suggests that the scarring effect dominates the cleansing effect and gives rise to lower average productivity during recessions