Central Bank analysts see signs of 'cleansing effect' of pandemic crisis

The increased number of liquidations of companies in RUSSIA amid the pandemic crisis is not only associated with risks for further economic growth, but also with potential positive effects for medium- and long-term growth, according to an analytical note by the Research and Forecasting Department of the Bank of Russia “Who exits the market during the period crisis."

According to Central Bank analysts, in 2020, during the first wave of the crisis, the least productive enterprises also left the market, which allows us to speak about the manifestation of the cleansing effect of the crisis (cleansing effect). Thanks to it, the number of problem organizations in the economy is reduced, and the labor force is released, which can potentially be employed in more productive enterprises.

“Signs of a cleansing effect of the crisis are indicated by a sharp increase in the intensity of exits among the least productive enterprises, while the leaders in efficiency were less affected by the first wave of exits. As a result, the productivity profile of the enterprises remaining on the market is improving,” the Central Bank study notes (.pdf).

Labor productivity at the enterprise was calculated as the ratio of revenue to the number of employees (according to financial statements). The sample was divided into three groups: leaders in productivity (20% of the most efficient enterprises in each industry), catch-ups (their productivity is lower than the leaders, but above the median) and laggards (performance is below the median).